Richard Tullier, CPA explains that 3 – 7 years is a general guideline for record retention, if you find yourself asking “How long should I keep my tax records?”
It was January 2006 and my grandparents had decided that although they were spared any damage from Hurricane Katrina, they wanted to move north of the Lake so they could get away from having to evacuate in the future. As I was helping them get things out of the attic, I noticed boxes of paper that dated back to the 1980s. Puzzled, I asked, “Paw Paw, why are you keeping all of these old receipts?” His response, “For if I get audited.”
Even though I was a young tax staff at the time, even I knew that was unnecessary, but it happens a lot. Many clients will ask the question of us over the years – “How long should I keep my tax records?” and the response is always the same, somewhere between 3 – 7 years. But why?
The way the tax system was built by Congress, the IRS generally has 3 years from the date a return is filed to question the items on that return. According to the IRS code Section 6501 (26 U.S. Code s 6501) “… Except as otherwise provided … the amount of any tax imposed … shall be assessed within 3 years after the return was filed.” After that period, the return “prescribes” or becomes off limits in general. I say “generally” and “in general” because in cases of fraud, the IRS can theoretically go back indefinitely.
OK, so I get the 3 years, but why 7? Honestly, it’s something that our firm, Wegmann Dazet, as tax preparers, tells people is a good safe number; even if the IRS alleges fraud, the likelihood of an indefinite lookback is highly improbable. My personal records are only kept for 3 years. The IRS even weighs in.
And what tax records should you keep? If you run a business, you want to keep invoices, payments, bank statements, etc. If you are an individual wage earner, you’ll want to keep copies of your W-2s and anything supporting your expenses for the year in question.
So, if you’re looking to downsize, look no further than those 20-year-old tax records. I promise no one needs them and the IRS doesn’t want to see them. All they do is provide food for termites at this point.
If you’re still asking yourself “How long should I keep my tax records?”, give us a shout!