How long should you keep personal tax records?

Answer 1

Federal Laws specify how long you must retain the documentation to support the filing of income tax returns.

For most taxpayers, this period is three years from the original due date of the return or the date the return is filed, whichever is later. For instance, if you filed your 2006 Form 1040 April 17, 2007 or sooner (disregarding the extended NE "storm" due date), the IRS has until April 17, 2010, to audit the return and assess a deficiency if necessary.

The statute of limitations period extends to six years if a return includes a substantial understatement of income (defined as omitting income greater than 25% of the amount reported on the return). There is no statute of limitations if a taxpayer fails to file a tax return or commits fraud. A taxpayer is considered to have committed fraud if he/she submits a false return or if there is a willful attempt to evade tax.

If a required return is not filed, the records must be kept forever, as the statute of limitations does not begin until the form is filed. Failure to keep adequate records is a separate violation from failing to pay or to file.

And of course anything in a return that may be required to prove a position in a future return, should be kept as support for that position. For example, basis calculations that effect an ongoing holding, amortization of mortgage points etc.

There may be non-tax reasons to retain these records. If you are unsure you should contact a financial advisor and/or tax specialist.

And finally, it ain't really that hard to keep them around...and having them really can't do you harm. ( I say, only slightly cynically, I've seen people who seen to be in a great rush to throw them out and feel they make a mess....while they have piles of laundry and garbage laying around that are probably older).