This is a guest post from “Bruce the tax guy”. He writes over at The Tax Guy and graciously sent over this guest post to help me out while I get my school schedule adjusted. I hope you enjoy!

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Why save records?


Now what follows pertains to tax returns but in my opinion should be used towards all records that are of importance.

Once you file your tax return is there any reason to save the records? The answer is usually wrong by most filers. Save them. How long is somewhat dependent and I will cover as I go on.

Mainly you want to save these records so you can substantiate the information on your tax return if you need to. Just because a year has passed, doesn’t mean you are in the clear. The IRS is carefully (my opinion) several years behind. I just finished with a tax payer who had the IRS after him for a return from 7 years ago. (The IRS wants their money.) So you could get an audit letter from years back. I tell most people to keep their records for at least 7 years. Those who have a business I tell them 10 years and if they have incorporated I suggest never getting rid of them.

As for your prior year returns, some states require even longer periods so if you are unsure check your state. The minimum is three years. It is advisable to keep them longer if reported transactions might affect future years.

Again, most Audits occur within three years of filling the return. After that period has past, check receipts to see if they fall into some other area that would require you to save them even longer.

If you have business records, you can dispose of most receipts dealing with operational expenses. So long as they don’t fall under a statute of limitations. However to verify the cost of future sales, retain receipts that relate to property that you still have/own. It is commonly suggested to keep your payroll records for a minimum of four years, I tell my clients 7. Now if your business produces an overall loss on the tax return, the loss is either carried forward or backward depending on your situation so save the return and records showing the calculations creating the carryover.

A few short tips:
o Save mileage logs, motel bills and meal receipts for the 3 year period
o Truckers keep your log books for the three years
o Keep you closing papers from the sale of your home, 3 years
o Fixing your home or adding on, keep these records for 3 years after sale of home
o Year end brokerage statements, 3 years
o IRA contributions and/or distribution records, forever (nondeductible contributions are particularly important.

While the most common statute of limitations is three years from the filing of the return (always assume no matter when you filed that you filed on the last day of the filing season unless it was late then use the late date of October 15th, whatever year). Of course the return that was never filed has no statute of limitations.
The statute of limitations is six years on returns where income has been understated by 25% or more.

As the big tax history person/geek that I am, saving your returns indefinitely may provide good historical information not to mention providing substantiation.

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