Is your cabinet overflowing? Do you hesitate to purge tax information because you’re not sure what to keep and what to discard? Here’s a quick guide to help you cut through the clutter.
- Expenses. Substantiation for deductions includes charitable donation acknowledgments, receipts for employee business expenses, and automobile mileage logs. Retain these at least seven years after you file the return claiming them.
- Income. The same seven-year rule also generally applies to common tax forms such as 1099’s showing interest, dividends, and capital gains from banks or brokerages, and Schedule K-1’s from partnerships and S corporations. The IRS recommends holding on to your W-2’s until you start collecting social security. Tip: Shred interim income reports once you’ve compared the totals to annual forms.
- Retirement Accounts. You may have to calculate the taxable portion of distributions, so keep records detailing your contributions until you’ve recovered your basis.
- Tax Returns. The statute of limitations is usually three years but can be six years if under-reported income is involved. In cases of fraud or when no return is filed, the IRS has an indefinite time period for assessing additional tax. As a general rule, keep federal and state returns a minimum of seven years.
For additional information, including how long you should store business papers and payroll reports, please call. We’ll be happy to help you establish a records retention schedule.