You probably felt relieved after you filed your 2017 income tax return (or filed for an extension). However, if your office is now littered with years’ worth of tax returns, canceled checks, receipts and other financial records (or you are drowning in equivalent computer files and tax-related data), you most likely are ready to dispose of what you can. These retention guidelines will help you as you purge.
Hold onto records that support items shown on your tax return for as long as the statute of limitations dictate — usually three years from the due date of the return or the date you filed, whichever is later. Therefore, you are probably safe to get rid of records for the 2014 tax year if you filed on time that year. Of course, you will need to keep some records longer.
For instance, no statute of limitations apply if you neglect to file a tax return (or you filed a fraudulent one). On the whole, you will want to permanently retain copies of your returns in order to prove that you did file a legitimate return.
Consider, too, that, if you understate your adjusted gross income by 25% or higher, the statute of limitations period is six years.
Some specifics for businesses
Records corroborating business property costs and deductions are indispensable in determining the basis and any gain or loss when the property is sold. As specified by IRS guidelines, retain these records for as long as the property is in your possession, plus seven years.
The IRS suggests holding onto employee records for three years after an employee has been terminated. You are also advised to keep records that support employee earnings for a minimum of four years. (Usually, this time frame will satisfy varying state and federal requirements.) Moreover, save employment tax records for four years from the date the tax was due or the date it was paid, whichever is longer.
For travel and transportation expenses backed by mileage logs and other receipts, retain supporting documents for the three-year statute of limitations period.
Regulations for sales tax returns vary by state. Check the rules for the states where you file sales tax returns. Retention periods typically range from three to six years.
When in doubt, don’t throw it out
Gathering tons of paperwork (physical or digital) is not hard when you file tax returns year after year. If you’re uncertain whether or not to toss a document, the best practice is to keep it for at least six years. If the record is property-related, you will want to save it for seven years after you no longer own the property. Remember you need to hold onto tax returns permanently. If you have any questions regarding rules or other guidelines, please call us at 949-860-9902, or click here to contact us.