How Do I Know What Records to Discard?

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A new year may find a number of individuals with the pressing urge to take stock, clean house and become a bit more organized. With such a desire to declutter, a taxpayer may want to undergo a housecleaning of documents, receipts and papers that he or she may have stored over the years in the event of an IRS audit. Year to year, fears of an audit for claims for tax deductions, allowances and credits may have led to the accumulation of a number of tax related documents—many of which may no longer need to be kept.


However, it is of extreme importance for tax records to support the income, deductions and credits claimed on returns. Therefore, taxpayers must keep such records in the event the IRS inquires about a return or amended return.


Return-related documents


Generally, the IRS recommended that a taxpayer keep copies of tax returns and supporting documents at least three years. However, the IRS noted, there are some documents that should be kept for up to seven years, for those instances where a taxpayer needs to file an amended return or if questions may arise. As a rule of thumb, taxpayers should keep real estate related records for up to seven years following the disposition of property.


Health care related documents


Although health care information statements should be kept with other tax records, taxpayers are to remember that such statements do not need to be sent to the IRS as proof of health coverage. Records that taxpayers are strongly encouraged to keep include records of employer-provided coverage, premiums paid, advance payments of the premium tax credit received and the type of coverage held. As with other tax records, the IRS recommended that taxpayers keep such information for three years from the time of filing the associated tax return.


Income, deductions, and credit related documents


You should really hang on to your records showing income, deductions, and credit for at least five years and business owners should keep them even longer. If you neglect to report more than 25% of your income, the IRS has up to six years to audit someone. Keep records of your expenses for withdrawals from health savings accounts and 529 college-savings plans (Form 1095), and records of IRA and other retirement contributions. Hang on to records establishing the basis of certain property for as long as you own it, plus the three year audit period; including records of purchasing a home and home improvements. Keep records showing purchase date and cost of stocks, mutual funds, and other taxable investment accounts.


Last year’s return


Taxpayers are encouraged to keep a copy of last year’s return. The IRS, in efforts to thwart tax related identity theft and refund fraud, continues to make changes to authenticate and protect taxpayer identity in online return-related interactions. Beginning in 2017, some taxpayers who e-file will need to enter either the prior-year adjusted gross income or the prior-year self-select PIN and date of birth—information associated with the prior year’s return—to authenticate their identity.



If you have any questions regarding documents you should keep or throw away, please feel free to call our ofice


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