It’s tax season and if you think the work is over once you file your return, think again. Filing your tax documents away is just as important. But what do you need to keep and for how long?
Hanging on to your tax-related records is critical for at least three years. That’s how long the IRS can audit your return or assess additional taxes. The statute of limitations expires three years after you file your return, or if later, three years after the tax return’s original due date.
In some cases, the statute of limitations extends beyond three years. For instance, the statute period jumps to six years if you understate income, whether you're intentional or not. Therefore, most people recommend you keep your source documents for a minimum of 7 years.
Although the IRS statute of limitations is a good rule of thumb, there are exceptions to consider. For example, it’s wise to keep your tax returns themselves indefinitely because you never know when you’ll need a copy of your individual income tax return.
For one thing, the IRS often destroys original returns after four or five years. So if the IRS comes back 10 years later and claims you never filed a return for a particular year, it can assess tax for that year even though the limitations period for properly filed returns has long since expired. As you can see, it would be difficult to defend yourself without a copy of your tax return.
Form W-2 is also important to keep at least until you start receiving Social Security benefits. You may need them if there’s a question about your work record or earnings in a particular year.
If you have property records, it’s ideal to keep closing documents and records related to initial purchases and capital improvements until at least three years (preferably six years) after you file your return for the year in which you sell the property.
When it comes to sales of stocks or other securities, retain purchase statements and trade confirmations until at least three years (preferably six years) after you file your return for the year in which you sell these stocks or other securities.
If you have any questions about your tax records or documents, contact your MarksNelson professional at 816-743-7700.