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How Long Should You Hold On To Old Tax Records?



Charles Woodson, How Long Should You Hang On To Tax Records

Generally, taxpayers should hold on to their tax records for at least 3 years after the due date of the return to which those records apply. However, if the original return was filed later than the due date, including if the taxpayer received an extension, the actual filing date is substituted for the due date. A few other circumstances can require taxpayers to keep these records for longer than 3 years.

The statute of limitations in many states is 1 year longer than in the federal statute. This is because the IRS provides state tax authorities with federal audit results. The extra year gives the states adequate time to assess taxes based on any federal tax adjustments.

In addition to the potential confusion caused by the state statutes, the federal 3-year rule has a number of exceptions that cloud the recordkeeping issue:

  • The assessment period is extended to 6 years if a taxpayer omits more than 25% of his or her gross income on a tax return.
  • The IRS can assess additional taxes without regard to time limits if a taxpayer (a) doesn’t file a return, (b) files a false or fraudulent return to evade taxation, or (c) deliberately tries to evade tax in any other manner.
  • The IRS has unlimited time to assess additional tax when a taxpayer files an unsigned return.

If none of these exceptions apply to you, then for federal purposes, you can probably discard most of your tax records that are more than 3 years old; however, you may need to add a year or more if you live in a state with a statute of longer duration.

Examples: Susan filed her 2014 tax return before the due date of April 15, 2015. She will be thus able to safely dispose of most of her records after April 15, 2018. On the other hand, Don filed his 2014 return on June 1, 2015. He needs to keep his records at least until June 1, 2018. In both cases, the taxpayers may opt to keep their records a year or more beyond those dates if their states have statutes of limitations that are longer than 3 years. 

Important note: Although you can discard backup records, do not throw away the filed copies of any tax returns or W-2s. Often, these returns provide data that can be used in future tax-return calculations or to prove the amounts of property transactions, social security benefits, and so on. You should also keep certain records for longer than 3 years:

  • Stock acquisition data. If you own stock in a corporation, keep the purchase records for at least 4 years after selling the stock. The purchase data is needed to prove the amount of profit (or loss) that you had on the sale.
  • Statements for stocks and mutual funds with reinvested dividends. Many taxpayers use the dividends that they receive from a stock or mutual fund to buy more shares of the same stock or fund. These reinvested amounts add to the basis of the property and reduce the gain when it is eventually sold. Keep these statements for at least 4 years after final sale.
  • Tangible property purchase and improvement records. Keep records of home, investment, rental-property or business-property acquisitions, as well as all related capital improvements, for at least 4 years after the underlying property is sold.

Tax return copies from prior years are also useful for the following:

  • Verifying Income. Lenders require copies of past tax returns on loan applications.
  • Validate Identity. Taxpayers who use tax-filing software products for the first time may need to provide their adjusted gross incomes from prior years’ tax returns to verify their identities.

The IRS Can Provide Copies Of Prior-Year Returns – Taxpayers who have misplaced a copy of a prior year’s return can order a tax transcript from the IRS. This transcript summarizes the return information and includes AGI. This service is free and is available for the most current tax year once the IRS has processed the return. These transcripts are also available for the past 6 years’ returns. When ordering a transcript, always plan ahead, as online and phone orders typically take 5 to 10 days to fulfill. Mail orders of transcripts can take 30 days (75 days for full tax returns). There are three ways to order a transcript:

  • Online Using Get Transcript. Use Get Transcript Online on IRS.gov to view, print or download a copy for any of the transcript types. Users must authenticate their identities using the Secure Accessprocess. Taxpayers who are unable to register or who prefer not to use Get Transcript Online may use Get Transcript by Mail to order a tax return or account transcript.
  • By phone. The number is 800-908-9946.
  • By mail. Taxpayers can complete and send either Form 4506-T or Form 4506T-EZ to the IRS to receive a transcript by mail.

Those who need an actual copy of a tax return can get one for the current tax year and for as far back as 6 years. The fee is $50 per copy. Complete Form 4506 to request a copy of a tax return and mail that form to the appropriate IRS office (which is listed on the form).

If you have questions about which records you should retain and which ones you can dispose of, please give this office a call.

Have a tax question? Contact Charles Woodson.

 

 

Chuck Woodson

Leading Expert and Fiduciary Coach to families dealing with trusts and estates. Contact me to handle all trust and estate matters seamlessly for you.

Contact Tax Advisor/Fiduciary Coach Chuck Woodson at 858.277.8780

One thought on “How Long Should You Hold On To Old Tax Records?

  1. Good post Chuck. In the event of losses, be they be they capital, passive, or operating it is always a best practice IMHO to keep records back to the establishment of the original loss.

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