Tax Records You Can Trash
If you’re considering turning that extra bedroom into a storage area for tax records but aren’t sure it will hold them all, it may be time to get rid of some things. But, how is one to know exactly what to keep and what to toss?
The IRS statute of limitations is a good place to start, but is not all-inclusive, according to tax consultant Jeff Schnepper. For assessment of additional taxes, the statute of limitations runs generally three years from the date you file your return, he said in an article for MSN Money. There are a few exceptions, however.
- If you don’t report all your income and the unreported amount is more than 25 percent of the gross income actually shown on your return, the limitation period is six years.
- If you’ve claimed a loss from a worthless security, the limitation period is extended to seven years.
- If you file a “fraudulent” return, or don’t file at all, the limitation period never begins to run. The IRS can come back on you at any time.
You should keep all records to verify income and deductions on your return during the statute of limitations, in case of an IRS audit. Documents you should hold onto indefinitely include capital gains and loss, expenses on your home (until you sell it), business records, employment, bank and brokerage statements and old tax returns. For more specific information about tax records, consult your tax consultant.