How long do you have to save old returns?
As another tax season comes to a close, you might have come across your old tax returns from two, five or even 10 years ago and wondered if you still need to hang onto them. The IRS has very specific rules about how long you need to keep those returns but as with most things, there are always exceptions to the general rule of thumb. Here is what you need to know in order to help you decide what to shred and what to save.
The General Rule For Saving Old Tax Returns
The IRS requires that you keep your tax returns and any supporting documents such as receipts for three years after the date you filed or the due date of your tax return, whichever is later. Why three years? That is the period of time until the statute of limitations runs out – meaning after three years, you can no longer file a claim for money you were entitled to and the IRS can no longer assess you for additional tax owed.
So for example, if you filed your 2013 tax return on February 1, 2014, you should keep that return and its corresponding supporting documents until at least April 15, 2017.
The Exceptions to the Rule
Before you go tossing out those old returns from last decade, note the following six exceptions to the three year rule.
#1: Retirement Accounts: Keep tax forms for IRAs and other retirement accounts until seven years after the account balance hits zero.
#2: Claims: Keep records for claims filed for a loss of worthless securities or bad debt reduction for seven years.
#3: Schedule C: If you amortize, depreciate or buy or sell property (and note that property includes buildings as well as stock, machinery or office equipment) keep those records until the statute of limitations expires or you no longer have the property.
#4: Missing Income: If you failed to report more than 25 percent of the gross income shown on your return, then keep your tax return and supporting statements for six years.
#5: Self-Employment: If you are self-employed, then you are responsible for filing and paying employment tax. This includes federal income tax and both the employer and employee social security and Medicare taxes. Keep employment tax records for at least four years after the tax due-date or the day the tax was paid, whichever is later.
#6: Missing Returns: If you file a fraudulent return or no return at all, which obviously I do not recommend, then you should plan on keeping your tax records forever. Why? Because in those cases, there is no statute of limitations. The IRS can decide at any time to look into your situation and assess taxes and penalties.
Retirees especially can usually benefit from having a tax professional review their tax returns with an eye for inefficiencies. For example, you might be pushed into a higher tax bracket at the age of 70 ½ when your Required Minimum Distribution (RMD) comes due. Most independent financial firms offer a complimentary tax review as part of the retirement planning process. For more information or to schedule your review, visit us at AskBeau.com
References:
The IRS: How Long Should I Keep My Records:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-long-should-I-keep-records
The IRS: Employment Tax
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employment-Taxes-2