Congratulations on filing your taxes. I hope they were too bad this year.
Now, it is time to shred some taxes and their associated documents.
Tax Shredding Time
How long do you have to keep your taxes?
Well, it’s the IRS, so the answer is of course, complicated and convoluted. However, for the most part, the answer is three years. But, before you fire up that shredder, and destroy your tax records, let’s look at the exceptions. I’ll tell you when you can just skip a section so it doesn’t get too tricky.
Skip this section if you have never filed or paid late:
- If you paid the tax late, you may have to keep your tax documents longer. The rule is that you must keep your taxes for two years from the date your paid the tax or filed your return, but no less than three years.
- In other words, you can shred your 2012 and earlier taxes during 2016 (you just filed and paid your 2015 taxes), but only if you actually filed and paid your 2012 taxes in 2012. If you were late, you have to keep them for two years after you paid them. If you pay your taxes on time, this does not apply to you.
If you have never claimed a loss from a worthless security or bad debt, skip this section:
- You have to keep records of a worthless security loss or bad debt for 7 years. That’s a long time, but most people won’t ever have this apply to them.
Skip this if you’ve never had employees
- You have to keep employment records for 4 years from the date that the tax becomes due, or is paid, whichever is longer.
Skip this if you have never claimed property that needs depreciated
- If you are claiming a deduction for property that is depreciating, you have to keep records through the entire life of depreciation. In other words, if something is depreciating over 12 years, you have to keep those records for 12 years.
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Shred Your 2012 Taxes Now
If none of the things above apply, it’s time to shred your taxes that are over three years old.
In 2016, you just filed your 2015 taxes, so you clearly must keep those. You’ll need your 2014 and 2013 tax returns and documents also. But, your 2012 taxes are now three years old. Fire up the shredder!
Note that if you did not file, or if you filed a fraudulent return, or you have income that you did not report, then all bets are off. There is no statute of limitations for fraud on tax returns, so shredding or not, they can still come after you. Same if you didn’t report all of your income. However, if you file your taxes like a normal, non-criminal, American, you are clear to shred.
Note that this does not necessarily mean that you are home free, or that you cannot be audited. It just means you no longer have to keep the records. So, if you can’t deduct a swimming pool, you still can’t deduct a swimming pool and the IRS can make you pay. The difference is that if you can deduct a swimming pool, for whatever reason, you no longer have to have the receipts to prove that you paid for it. The assumption is you did.
I’ve seen people with 10 years of tax returns in a filing box because they are afraid to throw away tax stuff. Don’t be that guy. Shred your tax records and returns that are three years old, unless you were late, an employer, or had bad debts or worthless securities.
The above if for general information only and is not tax advice. Consult your tax professional for tax advice specific to your own situation.