How long do I keep those old tax returns?

 

By Jim W. Norman, CPA

jim@njcocpa.com

 

OK, weíve got April 15th behind us and our tax returns are properly filed.What do we do with all those old income tax return copies and records that we have?The definitive answer is Ė it depends.If you are one of those folks that never throws anything out and have tax returns back to 1950, here is the criteria for determining what to keep.

 

The biggest fear is that as soon as you throw any of your records out, you will be required to provide them to the IRS. The good news is that there are certain protective rules that will guard you against an old assessment or an untimely audit by the IRS.These rules are known as the statute of limitations. The statute of limitations limits the number of years during which the IRS can audit your tax returns or require you to provide records. Once the statute of limitations expires for a certain year the IRS canít go after you for additional taxes.Of course you canít go after them for refunds either.

 

For audits and assessments the general rule is that there is a three year statute of limitations. The time runs from the date you file your return.If you file prior to the due date the time runs from the due date.For refund claims itís the later of three years or two years from the date you paid the tax.

 

As you have come to expect from Uncle Sam there are some exceptions.If you donít report all of your income and the amount is understated by more than 25% of the amount shown on the return filed, the statute is extended to six years. If you claim a loss for a worthless security the time frame for identifying the loss is stretched to seven years during which you can claim the loss.

 

However, you canít hide behind this protection if you are not following the rules. If you file a fraudulent return or fail to file at all the statute of limitations period never starts to run; the IRS can get you at any time.

 

There are other statute of limitation periods, too. For example, there is a ten year statute for collections of taxes assessed, and payroll tax returns have their own rule.For payroll tax returns the rule is three years from the April 15th of the year after they are due or the received date, whichever is later.

 

Property records included in your tax returns should be maintained for the statute of limitations period following the disposal of the asset for tax purposes.If there is an exchange of property that period would include the disposition of the exchanged property.

 

So, you ask, ďwhat does all that mean?ĒFor the average taxpayer seven years should be a sufficient holding period for keeping income tax records.But, before you throw any records out, you should consider other needs such as insurance requirements or proof to creditors in addition to the IRS requirements.

 

You can trash, shred, or make papier-m‚chť but you donít have to keep those records forever.

 

Jim W. Norman, CPA is a principal with Norman, Johnson & Co., PA, a Spartanburg Certified Public Accounting firm.This column is intended to provide you with an informative summary of the subject matter covered.You should consult with your tax advisor for details and assistance in applying this general information to your specific situation. (www.NormanJohnsonCPA.com)

 

 

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