Tax season is over, but have you identified which records you can eliminate? What can and can’t be thrown away?
Are you wondering, “How long do I have to hold on to my tax records?” The answer depends in part on your situation. Here are some general rules:
- You don’t have to keep tax records if the statute of limitations has expired. The statute of limitations for any tax year is three years from the date you file your return or two years from the date you paid the tax, whichever is later. For example, if you filed a 2015 return in 2016 and had taxes due of $500 but paid $400 with your return, you have until April 2020 (three years after you filed) to file an amended return showing that $100 is still owed. If no payment were made with the return, the statute of limitations would be extended by two more years; in this case, it would expire at the end of 2022.
- If you’re under audit, keep all records related to the audit for six years after it concludes (or longer under certain circumstances).
- Suppose you’re audited by Internal Revenue Service (IRS) examiners who come knocking at your door. In that case, they’ll want you to keep all records of their visit for six years after their departure — even if they let bygones be bygones and never come back again.
You don’t have to keep tax records forever, but there are some specific times when you’ll need to keep them for at least six years.
Suppose the IRS contacts you about an issue with a return prepared by yourself or someone other than an accountant; keep those records for six years from April 15 of the following year (the date when returns were due). This is because it takes time for the IRS to process all of its forms and notices — and sometimes even longer for taxpayers who don’t respond immediately. So if there is any discrepancy in your return, it may take up to six years before they realize it.
Things to Consider While Getting Rid of Your Old Tax Records
It’s time to clean out your tax records. But before you toss your old W-2s and 1099s, there are some things you should know.
- The IRS has a three-year statute of limitations on audits. That means the agency can go back only three years from the date it receives a return or a statement that is later found to be incorrect. The IRS doesn’t have the authority to go back further unless there’s fraud involved.
- The IRS also can’t go back more than six years if it suspects someone is underreporting their income by 25% or more or if there’s evidence that they have not reported all their assets on their returns.
- If you find an error on your return and correct it before filing, it shouldn’t be considered late. But if you file without correcting a mistake, you may owe interest and penalties for late filing and paying taxes owed for the year in question (click here for details).
- The IRS has a handy guide on how to dispose of your documents. The most important thing is that you can’t just throw them in the trash or recycling bin — they need to be shredded, incinerated, or “destroyed beyond recognition.”
- You should understand what’s considered confidential information. The IRS says most personal tax returns contain confidential information that shouldn’t be shared with anyone else. That includes Social Security numbers and other personal data like financial accounts and medical information. If you’re getting rid of any documents containing this information, ensure they’re shredded first or destroyed by fire or acid wash before disposal. The IRS also recommends putting confidential documents in locked storage containers until they can be adequately eliminated by shredding, incineration, or acid wash by a professional shredding service provider.
- Don’t send sensitive information via email or fax. Another reason why it’s important to shred your old tax returns: Many people still use fax machines and email as ways to send sensitive information.
Ultimately, the IRS is looking out for taxpayers’ best interests. According to their guidelines, they would like taxpayers to keep tax records for as long as possible, keeping in mind that it may not always be practical for everyone to do so. For any taxpayer to meet the required standard, records should be held until the statute of limitations has expired on assessment.
Those limitations generally run from three to twelve years after the return was filed or two years after it was due to be filed. Regardless of your specific tax spreadsheets, you should ensure you keep possession of them for at least the most prolonged time allowed by law.
For more information regarding tax records for the self-employed and small business owner, see the IRS website.
At Citrine Accounting & Taxes, we utilize a secure portal found on our homepage for uploading sensitive documents that are required when filing your taxes. All client data is stored securely to maintain client privacy in accordance with IRS Code Section 7216.