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Financial Planning / Tax Strategies
|Subject: Tax Paperwork to Keep||Date: 5/7/2004 4:00 PM|
|Author: TMFTwitty||Number: 71764 of 123024|
Tax Paperwork to Keep
By Roy Lewis (TMF Taxes)
May 7, 2004
So you've completed your tax return, and you find that you have enough records to fill a large dump truck and a small wheelbarrow. Now what? How long do you have to hang on to all this stuff?
Unless fraud, evasion, or a substantial understatement of income is involved in your tax return, Uncle Sam generally has only three years in which to tap you on the shoulder and ask for the underlying documents necessary to support information reported in your tax return.
Remember, unlike the common "innocent until proven guilty" principle, you must prove the validity of your tax return. You have to sweat out three years before you can rest easy that your return hasn't been selected for audit. Usually that countdown period begins on the later of the date that the tax return is required to be filed (usually April 15) or the date that the tax return was actually filed.
How long you have to keep your paperwork depends directly on the statute of limitations, but here are some guidelines:
Your copy of the tax return: Keep it forever
That's right. You never want to dispose of your copy. You never know when this document will come in handy. Remember that in many cases, the IRS destroys the original returns after four or five years. It's always best to have your copy to fall back on.
Cancelled checks, deposit statements, and receipts: Keep for at least three years
Because of various combinations of the statute of limitations and technical carry-back and carry-forward provisions in the code, though, keeping them for longer than three years is preferred. (Five years is better, and seven years is best.) But make sure that these cancelled checks and receipts are only for transactions that have an impact on this single year only, such as receipts for your itemized deductions or interest income.
In other words, if a receipt is for something that won't appear on your tax