In a recent column, as part of this decluttering effort, certified financial planners and accounting experts offered their take on which documents you could get rid of and which you should keep. The advice led to some follow-up questions from readers.
The experts I interviewed gave these two recommendations:
• Keep tax records for seven years after a return is filed.
• Keep your tax returns indefinitely.
One reader asked: “What’s the difference between tax records and a tax return?”
Your tax records are the documents and receipts that support the information you put on your tax return. For example, my husband and I have saved for our children’s college education in 529 plans. Earnings in a 529 are not subject to federal tax or, generally, state tax if the beneficiary uses the funds for qualified educational expenses. It’s vital that we keep good records showing we spent the money on qualified school expenses.
“The records are the supporting documentation to prove that the numbers on your return are true,” said Kelley Long, a Chicago-based certified financial planner and certified public accountant. “For example, your W-2, receipts documenting charitable gifts, or property tax files showing the amount of taxes you paid that year. You don’t file those things with the IRS. But if they request them, you have to produce them or you may end up owing additional tax and/or penalties.”
Generally, the Internal Revenue Service says you should keep tax records for three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later. But the agency has a longer look-back period of six years if you underreported your gross income by more than 25 percent. Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction, according to the IRS. And, if you’ve submitted a return that the IRS deems fraudulent, there is no time limit for how long the agency can come after you.
