Registry mantenance
While it may give you some personal satisfaction to review your financial records from rags to riches. It’s probably still time to clean up your growing log storage.
Regardless, you ‘know’ that as soon as the dumpster moves away from your curb, the IRS will want exactly those documents you threw away. Let’s see what are the rules? What information do you have to keep and for how long?
Let’s start with your “safety zone,” the IRS statute of limitations. This limits the number of years the IRS can audit your tax returns. Once that period has expired, the IRS is legally barred from even asking you questions about those returns.
The idea behind this is that after a period of years, records are lost or misplaced and memory is not as accurate as it used to be. There is a need to close things. Once the statute of limitations expires for a specific year, the IRS cannot claim additional taxes from you. However, you also cannot apply to the IRS for additional refunds.
“Three Year” Rule
When assessing additional taxes, the statute of limitations is three years from the date you file your return. If you’re seeking an additional refund, the limitation period is generally three years from the date you filed the original return or two years from the date you paid taxes. There are exceptions:
– If you do not declare all your income and the undeclared amount is greater than 25% of the gross income that appears on your return, the statute of limitations is six years. – If you have claimed losses on a worthless title, the statute of limitations is extended to seven years.
– If you file a ‘fraudulent’ return, or fail to file, the statute of limitations never begins to run. The IRS can, in fact, catch you at any time.
– If you are deciding what records you need or want to keep, you should ask what your chances of an audit are. An audit is an IRS check of income items and deductions on your return. You must maintain records to support those items until the state of limitations ends.
If you filed your return on time and paid what you owed, the requirement is to keep your tax records for only three years. But some records have to be kept longer than that.
Remember, the “three year” rule refers to the information on your tax return. Pay attention, some of that information may be related to transactions older than three years.
Here is a checklist of the documents you should keep.
1. Capital gains and losses. Your earnings are reduced based on your basis: your cost (including all fees) plus, with a mutual fund, any reinvested dividends and capital gains. However, you may have bought those shares five years ago and have been reinvesting those dividends and capital gains for the past ten years. Also, don’t forget those stock splits. Therefore, you never want to throw away these records until after you sell the securities. Also, if you get audited, you have to prove those numbers. Therefore, you will need to keep those records for at least three years after you file the return reporting your sales.
2. Your housing expenses. Cost records for your home and improvements must be kept until the home is sold. It’s a good thing to do, although most homeowners won’t have any tax problems. That’s because earnings of less than $250,000 in your home ($500,000 on a joint return) are not taxable under the 1997 tax law enactment. ), or if you don’t qualify for the total earnings exclusion, you’ll need those records for another three years after the return is filed. Most homeowners won’t face that problem thanks to the 1997 tax law, but it’s better to be safe than sorry.
3. Business records. I must warn you: business records can be a nightmare. Nonresidential real estate now depreciates over 39 years. You could be audited for depreciation up to three years after filing your 39th year return. That’s a long time to hang on to receipts. However, you may need to show proof of those numbers.
4. Labor, banking and brokerage statements. Save your W-2s, 1099s, brokerage and bank statements to verify income for up to three years after filing or longer. Don’t even think about throwing away checks, receipts, mileage logs, tax journals, and other documents that confirm your spending.
5. Tax returns. Keep copies of your tax returns too. You can’t trust the IRS to actually have a copy of your past returns. I recommend my clients keep tax records for 6 years. The bottom line is that you should keep those records until they can no longer affect your tax return, plus the three-year statute. But that’s just for tax purposes.
6. Social Security records. You will need to keep some records for Social Security. Check with the Social Security Administration each year to confirm that your payments have been properly posted. If they are incorrect, you will need your W-2 or copies of your Schedule C (if you are self-employed) to prove the correct amount. Don’t throw away those records until after you’ve tested those contributions.
You can confirm your payments and estimate your future benefits by filing Form SSA-7004 with the Social Security Administration. You can download the form or apply online.
While it may give you some personal satisfaction to review your financial records from rags to riches. It’s probably still time to clean up your growing storage.