Now that your tax return is prepared, it’s time for some spring cleaning. How long must you keep records before you can throw them out? It depends.
You must keep the records needed to substantiate all your income and deductions available for inspection by the Internal Revenue Service.
You don’t have to spread them out on the coffee table in case someone from the IRS knocks your door. But upon reasonable notice from the IRS, you must be able to produce the records for an audit.
Except in the case of fraud, the IRS must audit your return within three years from the due date of the return or the date of filing, whichever is later.
But you should retain the following records for a longer period of time even though the statute of limitations has expired:
Prior Tax Returns
Keep copies of all tax returns you have filed in the past. These returns are helpful in preparing future tax returns, and they may be of value to the personal representative for your estate sometime down the road.
Payment of Taxes
Keep cancelled checks that prove that you paid your taxes when due The IRS records are not always what they should be, and sometimes they misplace your payment..
Basis of Property
Records relating to the cost of property and improvements to it should be retained as long as you own that property or a replacement property. If you sold your residence, but deferred the tax on the gain by reinvesting in a new house, you will need to retain the records for both the new house and the old house.
Of course, if you want to keep all your records forever, there’s no rule against it as you have the room.
We know many people who like to pore over old records, and seem to derive as much enjoyment from it as some of us do looking at old photographs.
But when the neighbors complain that your cancelled checks and receipts are blowing around the neighborhood, it’s time for some spring cleaning.