Is your file cabinet overflowing? Do you hesitate to purge tax information because you’re not sure what to keep and what to discard? Here’s a quick guide to help you cut through the clutter.
Substantiation for deductions includes charitable donation acknowledgments, receipts for employee business expenses, and automobile mileage logs. Retain these at least seven years after you file the return claiming them.
The same seven-year rule also generally applies to common tax forms such as 1099s showing interest, dividends, and capital gains from banks or brokerages, and Schedule K-1s from partnerships and S corporations. The IRS recommends holding on to your W-2s until you start collecting social security.
Tip: Shred interim income reports once you’ve compared the totals to annual forms.
You may have to calculate the taxable portion of distributions, so keep records detailing your contributions until you’ve recovered your basis.
The statute of limitations is usually three years but can be six years if underreported income is involved. In cases of fraud or when no return is filed, the IRS has an indefinite time period for assessing additional tax.
As a general rule, keep federal and state returns a minimum of seven years.
For additional information, including how long you should store business papers and payroll reports, please contact us. We’ll be happy to help you establish a records retention schedule.
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