What To Do With Your Income Tax Records
Are you ready for a major housecleaning but not sure how long you need to keep old income tax records? Before throwing away important income tax records, consider these general guidelines.
Federal income tax regulations require you to keep your records as long as they can be material to the administration of the tax law.
The retention periods apply to records needed to substantiate your federal income tax return and are based on the federal statute of limitations, which is normally three years. This means the IRS could audit your return up to three years from the due date of the tax return or the date of filing, whichever is later. However, if you substantially underreport income, fail to file a return, or file a fraudulent return, the statute of limitations could be much longer.
In addition, some states have a statute of limitations that exceeds the federal statute, or have laws or regulations that require taxpayers to maintain records beyond the state’s statute of limitations, often to verify carryovers, etc.
Tailor your retention years to the longer of the federal or state requirements. In deciding your own record retention schedule, consider indefinitely keeping those records that cannot be recreated by any other office, institution, or governmental unit. Also, keep your own financial concerns in mind when determining how long to keep your records. Most importantly, consult with your attorney for approval of any record retention policy.