Many of us wish to clear out old papers and files and this includes getting rid of old tax returns and supporting documentation. The problem is that we never know when it is quite safe to destroy the old tax documents. Unfortunately, there is no bright line rule to answer this question. Taxpayers with foreign (non-US) assets have particular rules to pay special attention to. Overseas taxpayers may also find it more difficult to obtain records from financial institutions located abroad and thus, they should be even more careful with record retention.
Below are some general guidelines to help determine when it may be permissible to destroy tax paperwork.
First and foremost, I remind clients that in the event of an IRS or State tax audit, the burden of proof is on the taxpayer to provide support for a tax position he has taken on the return. This is especially important when claiming tax deductions. As such, the premature destruction of documents could mean you lose in a tax audit.
The different rules contained in the tax statutes of limitation are very helpful in providing guidance as to the minimum retention periods for tax documents. It is critical that records such as receipts or canceled checks supporting an item of income or a deduction be kept until the statute of limitations expires for that year’s tax return. With this in mind it is important to remember that often, banking records and trading accounts are online and if one closes out the Read more