How Long to Keep Tax Documents

Frequently, clients overwhelmed with paperwork and files will ask "When can I destroy my old tax documents?"

The following offers some general guidance to carefully consider.

Avoid the Urge to Purge!
Maintaining documents and records is often essential for a tax audit by the IRS, state or local taxing authority.  Be aware that it is the burden of the taxpayer to provide sufficient proof and support for any tax position taken on a tax return. Prematurely disposing of relevant documentation and proof supporting a tax deduction or tax position could have a disastrous tax impact.

What is "Relevant Documentation"?
Records such as receipts, canceled checks, and other documents that support an item of income or a deduction, or a credit appearing on a return should be kept until the statute of limitations expires for that return.

How Long is "The Statute of Limitations"?
For most federal returns, the statute of limitations is three years from the date you filed the return. 

However, the following are some very important exceptions to this three-year statute of limitation:
• There is no period of limitations to assess tax when a return is fraudulent or when no return is filed.
• If income that you should have reported is not reported, and it is more than 25 percent of the gross income shown on the return, the time to assess is six years from when the return is filed.
• For filing a claim for credit or refund, the period to make the claim generally is three years from the date the original return was filed, or two years from the date the tax was paid, whichever is later.
• For filing a claim for a loss from worthless securities the time to make the claim is seven years from the date the return was due.
• If you are an employer, you must keep all of your employment tax records for at least four years after the tax becomes due or is paid, whichever is later.
You should also check your state and local statute of limitation rules before destroying files and records.
Keep in mind that documents may need to be retained and preserved for legal reasons other than taxation, such as insurance claims or facilitating the transfer of assets in the case of deceased family member. Documents like death certificates, estate tax closing letters should be kept indefinitely.
It is always a good idea to talk with a tax attorney or CPA if you have any questions about whether or not you should destroy any documents or files.