Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
How Long Do You Need to Keep Financial Records?
We all know that keeping a copy of receipts, tax returns, and other financial records is a good idea, but how long should we hold on to them? Of course, it is better to keep them for too long then to get rid of them only to find that you need a copy shortly thereafter; however, holding on to records indefinitely can lead to a room full of boxes that do nothing but gather dust.
Try using the following guidelines to decide how long to hold on to your records:
Try using the following guidelines to decide how long to hold on to your records:
- Tax returns – Of course, it depends. Tax returns should be kept for a minimum of three years which is the statute of limitations. However, if your return somehow understated your income by 25% or more (the exact definition of 25% or more is the subject of litigation) the IRS can go back 6 years. And if you did not file, or filed a fraudulent return, the IRS has forever. So the answer here depends on the accuracy of the return and the honesty of the taxpayer.
- Major purchase receipts — receipts and warranty information for major purchases such as a vehicle or major appliance should be kept until one year after you sell, or otherwise dispose of, the item.
- Personal records — everyday receipts, budgets, and financial planning documents can typically be thrown out after you have compiled your tax return for the year in question; however, if the receipt was used to claim a tax deduction for the year then either the original or a copy should be kept with your actual return.
- Legal records — legal documents can be anything from a small claims judgment to estate planning documents. Some of these should be kept until the corresponding statute of limitations runs out while others should be kept indefinitely. Check with your attorney before you discard any legal documents.
[View Article List]
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.