How long should you save your tax records?

How long to hold onto financial, tax and legal records is a loaded question.  For financial and tax records the IRS recommends a minimum of 3 years. However, I recommend my clients keep a copy of their tax returns and all the records that verify income and deductions indefinitely.   The reason being is that the statute of limitations on an audit from the IRS is based on the investigation.  For example,  You accurately report your income every April and dispose of your records every 3 years.  The IRS does an investigation and mistakenly believes you underreported your income 7 years ago.   Since you do not have copies of your documents you will have to try to gather old W-2's, investment records, and any other pertinent information to fight the wrong, but totally legal, allegations. 

What documents should you keep?  Any documents that show the income and expenses you used to prepare your tax return.  Listed below is a sample of the records you should not throw away.  Keep in mind that you may need other forms based on your personal financial situation

Income Documents:

*W-2 Forms

*1099 Forms

*K-1's

*Investment Statements

*Significant Cashed Checks

*Contracts for Work or Sale

Expense Documents

*Spending Receipts

*Charitable Donation Receipts

*Student Loan Statements

*HSA Contributions

*IRA Contributions

*Investment Loss or Income Statements

Yes, it is a hassle to keep all of your paperwork, but saving your records will give you peace of mind in the long run. 

Candace Stevens, CEO/President of

Number Cruncher LLC

cstevens@numbercruncherllc.tax

www.numbercruncherllc.tax