Tax Day is today. Hope you are ready!
If you have already filed, there is one more piece of tax business you can attend to before you run off into your summer. Time to shred some old tax returns and documents.
IRS Rule For How Long To Keep Taxes
The general rule for how long you have to keep your tax returns and other tax records is three years. HOWEVER, this is the IRS we are talking about, so there are some exceptions, and sub-rules to the general rule.
First, you need to know when to count from. The 3-year rule counts three years from the date you FILED them. So, if you filed early, you don’t technically have to wait until April 15 (I always do. Better safe than sorry.) On the other hand, if you filed late, whether with an extension or not, you need to keep them for three years from that date. Also, the IRS says you should keep your returns for two years after you paid the tax, so if you ended up paying late, or on some sort of payment plan, be sure to keep them for two years after that tax bill has been completely paid.
What Tax Documents to Keep Longer
If you claim a loss from worthless securities, or a bad debt, you have to keep those records (including the return itself) for 7 years.
You need to keep employment records for 4 years after the tax is due.
Any records that are tied to property you need to keep until you are done depreciating that property. With the larger 179 Deduction these days, this doesn’t apply to as many small businesses as it once did, but if you are depreciating something over 11 years, then you need all 11 years of records, should the IRS come calling.
Health records if you have an HSA. Health Savings Accounts are a great way to deduct health care expenses by first contributing the money into an HSA before paying your expenses. However, because there can theoretically be years between contributions and expenses, and you can technically wait as long as you want to claim those expenses (even years later), there is a good chance that you might end up needing more than three years worth of medical expenses should the IRS every come calling about your HSA. You should keep your medical records indefinitely for now, which means you’ll need to go through your taxes and pull them out, or keep them separately from the beginning. Using some sort of electronic records is a good strategy as well.
Fraud and Failure to File
Did you think you were in the clear after three years? Not so fast. Note that all of these limitations start from the DATE YOU FILE. That means if you didn’t file a return, the clock never starts. Technically speaking, you should keep your records forever if you didn’t file.
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The same applies for a fraudulent return. In other words, if you claim $50,000 in non-existent security losses, you won’t be able to hide behind the record limitations as an excuse to not have proof of your losses.
Shred Those 2013 Taxes
So, assuming none of the exceptions apply to you, and that you don’t need those records for other purposes, like business contracts or records, or your lender/banks want them kept, or maybe for insurance purposes, then it’s time to shred.
Since it is April 18th, if you filed on time for 2013 (which means you filed them by April 15, 2014) then you are int he clear to shred taxes from 2013 and earlier. Everything else, you still have to keep.
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