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August 11, 2011

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I'm with FMF, I have our tax records going back to 1986 for the very same reasons.

I keep all supporting docs for just 4~ years. 3 years I beleive is the max time for an audit by IRS (though it's longer for not reporting income, which I of course always do), after the 4th year, I shred the supporting docs but, keep the return FOREVER. I think scanning, etc., is a waste of time, a file box in the attic can do exactly what you need. When you gt to the 4th year, go back and destroy the supporting papers 4 years prior, etc., but, keep the return. I was self employed so have a lot of schedules, docs etc., but, this has always worked fine. thoughts?

I think that if you have the room, it's good to keep the records. Tax records are not insignificant documents, and I don't see why anyone would just destroy the records after 4 or 5 years. Keep them, you might need them for whatever reason.

www.evernote.com -- I keep my entire digital life in evernote. All scanned images are searchable. Everything is backed up in the cloud. I can access from any of my computers or phone. The organization aspect is fantastic. The searching is east. Evernote is truly my second brain and helps me remember everything. Evernote is by far my favorite application I have every downloaded!!! And before you ask -- Nooooo I do not receive any compensation from evernote (although I wish I did!). I should talk to them about that..... Anyways evernote is free to download -- $45 a year for premium.

I'm half way between, I keep everything for about 10 years (unless I forget to throw stuff away) and I keep durable goods and property records longer. I've always wondered: if you have older stuff can the government demand to see it? I also have heard that the IRS can audit back 7 years if they believe/claim that you are guilty of fraud. Don't know, and I'm not, but I am paranoid...

Jeff --

I think that's just the issue -- no one knows what is fine until they get challenged by the IRS.

I burn mine after 7 years. Working in heavily regulated industries, I can say 7 years seems to be a magical number with the government, anything before that never happened. The thing with retaining, is that information could cause a lot trouble if it got in wrong hands - best to only keep what is needed.

Nate I hope you encrypt those documents. if not you should get something like securezip

http://www.pkware.com/downloads/securezip-express

As a lawyer and an accountant, I generally recommend that clients keep their tax returns forever so that they can prove that they did file. The statute of limitations does not begin to run until you file the return.

As for the supporting documentation, I generally recommend that you keep it for 7 years. While 3 years is the general statute of limitations, this can be extended another 3 years if they can prove underreporting by certain percentages or in certain other circumstances. Because the SOL doesn't begin until you file, add another year to the six, thus getting the seven years. And if you file extensions, like many people do, I would go ahead and add another year.

There can also be other reasons you need to keep records, beyond IRS audits. Among others: (1) Your state may have a different statute of limitations. (2) In divorce proceedings, you may need to show what you brought into the marriage. Tax records can be very beneficial in these cases. (3) Insurance purposes, to prove value of certain assets.

I also recommend that individuals keep the records associated with buying and selling real property (their houses, other land) forever. Also, records dealing with inheritances, significant stock transactions, and certain other high dollar transactions should be kept for a significantly longer period of time than the IRS statute of limitations (perhaps forever).

I keep a copy of my actual tax returns but I destroy all supporting documentation after the 7th year. There is really no reason to keep this stuff and since it's full of sensitive information I like to destroy it asap.

I keep all of mine. I have about the last 5 years in my file cabinet and the rest in a big plastic storage container in my storage space. If IRS says I did something wrong or missed something, how do I know what I did, how and why as part of my defense? So I keep the forms, the instructions, and all supporting documentation. I have used mine in the past to look up how I handled a tax issue before. Last year, I had an error in my deductions (in my favor) that I made the same way 2 years back, so I had to correct three years of taxes. I know it did not go back further than that because I had the tax records to check.

I have also used the tax records to see what my old addresses were for 15 years back. I had to get a security clearance years ago for my job which required reporting addressess for the last 15 years and at that time the 15 years went back and included my college years. Some of the college years I had a different address every year because I moved around a lot from dorm to apt to shared house etc. Those records were invaluable for getting the addresses.

I also use the records and the W-2 forms to check against the income that was reported to Social Security and reported on the annual statement that was sent to me. I found some discrepancies where not all my income was reported to Social Security by my employers and was able to communicate that to SS by sending them copies of my W2s. I wanted to get credit for all I was entitled to.

I PDF everything and keep them on an external hard-drive (off-line and off any computers). I don't take any chances keeping important documents floating around digitally on a 'cloud,' no matter how secure the site claims to be.

@ Kathy, Without knowing more, you may have made a mistake by going back to amend old returns. By amending the returns, you restarted the statute of limitations, and now the IRS has three more years to do an audit on those returns. If you had left them alone, the statute would have passed and they would not have been able to audit them unless they could show that the longer statute of limitations (for gross underreporting - or in this case, gross overdeductions) should apply.

If you think that a return should be amended, you should always check with a professional (CPA or lawyer). You should not be amending returns when the statute of limitations has passed or is about to pass.

My accountant makes a PDF of them for me as well. This is very handy in case you need the tax returns for a loan, or just for reference. No copies to make.

Kimberly: I amended my taxes because of a transciption error. I understated the amount of my deductions, thus paying more tax that I should have. If they want to audit me, I have all the documentation for the deductions so I don't have anything to hide. I would rather find and correct the errors myself than have the IRS find them. My taxes aren't that complicated (single, no children)and I take deductions for mortgage interest, property taxes, state income tax and charity. I only own one property and don't have any outside income outside of my salary and normal interest and dividends.

@Kimberley: The only people who should worry about the SOL are those who have something to hide. If there is a legitimate error, why not correct it and get the money back?

Some people have their taxes done professionaly every three years and do their own in between. That way, they can correct errors they discorver based on the professional return, but not pay as much in fees.

You can amend your returns for three years to correct mistakes, but seven years is a safe amount of time if you are filing legitimate returns. However, if you are filing falsified returns to the IRS there is no statute of limitation.

Second Nate on Evernote and keep it there forever. I PGP (also free for personal use) encrypt the returns to my key, my wife's, and an additional decryption key (adk) that family has access to.

It is 3 year from the time of filing, not the tax year.

-Mike

I had a good one. In 2009, I owed just over $1k in taxes. It was the first year I filed single after the death of my husband. I had forgotten I lost 2 deductions at his death and didn't have more taken out of my pensions. I sent a letter to the IRS with my check and asked if they would double check my figures, as I wasn't sure they were accurate. They did. Three weeks later I got a check from them for $300. I checked where they told me that I had made a mistake. I hadn't.

I asked my American Govt. teacher how to tell the IRS they made a mistake. He said, "Very carefully." I just made certain I had money back to repay if they ever called me on it. Later, a CPA said not to worry. The IRS usually didn't worry about amounts that small, as it would cost them more than that to follow up. I still feel guilty and would like to return the money. Should I just call the IRS and ask?

Oh - one final question. I know the IRS keeps a good eye on our filings, but do they ever go back and check their own mistakes? It would seem wise sometimes.

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