When can I throw my tax stuff away?
Are your file cabinets and closets overflowing with papers? Frustration boiling over and ready to tear everything out by the roots? Here are a few tips on record keeping requirements.
Federal Taxes
The statute of limitations generally runs for 3 years from the date you file your return. For example, if you filed your 2011 return on April 15, 2012 the statute would expire on April 15, 2015.
What should I keep? The tax return and all supporting documents: W2s, mortgage statements, charitable contributions , business income and expense documents, etc. In general, support for an expense requires proof of payment (cancelled check, credit card statement, bank debit, etc.) and an invoice or some other document describing the expense. Charitable contributions require more specific documentation – see separate article.
Exceptions
Of course, it can’t be that simple. The most common exception deals with assets that are kept for long periods of time – real estate, cars, some equipment used for business.
Let’s take a house for an example. You buy it in 1995. In 2007 you upgrade the kitchen for $25,000. Then it is sold on October 31, 2009. You report the sale on your 2009 tax return which is filed on April 15, 2010. Keep these records until April 15, 2013.
Keep the documents that support the purchase price and the improvements. It is not necessary to hold on to the mortgage statements, utility bills, etc.
Another common exception is a car used for business. Keep the purchase records until 3 years after you dispose of it. This isn’t necessary if you never use your car for business.
Other Notes
The statute of limitations doesn’t start when no return is filed or if the return is fraudulent.
If you fail to report 25% or more of your gross income the statute is 6 years.
States
States often have different rules. California has a 4 year rule. Most states use a statute from 3 to 5 years