(Update: We have a winner! It’s tucscongirl!)
My kids are little hoarders. I swear one of these days, A&E is going to launch a “Hoarders: Kids Edition” and you’ll see my kids on the show, with their various rock, leaf and *other* collections stashed in shoeboxes. They hate to throw anything out. I have several clients, on the other hand, who do just the opposite: they shred and purge like nuts. Which is better?
For tax purposes, you need to find a middle ground for keeping tax and financial records. And that middle ground is more precise than somewhere between “forever” and “immediately.” Here are some tips to help you figure out which records to keep and how long to keep them:
- As a rule, keep your tax records and supporting documentation until the statute of limitations runs for filing returns or filing for refund. For most taxpayers, that means that you’ll want to keep those records for three years following the date of filing or the due date of your tax return, which ever is later. So, for example, if you filed your 2012 tax return on Tax Day, April 15, 2013, you’ll want to keep those returns and those records until April 15, 2016.
- If you (*cough*) don’t exactly report all of the income that you should report (generally, if you omit more than 25% of the gross income shown on your return), the statute of limitations is extended. You’ll want to keep those records for six years.
- If you file a clearly fraudulent return or if you don’t file a return at all, the statute of limitations never actually runs. In that event, you’ll want to hold onto your records, well, for forever (really, it’s much less work to simply file).
- Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
- If you claim depreciation, amortization, or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records. Similarly, if you claim special deductions and credits, you may need to keep your records a little longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for 7 years).
- If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
- You’ll want to keep your records organized – I recommend arranging them by year – and store them in a safe place.
- To save space (and quite possibly, your marriage and/or sanity), you can scan your records and store them electronically. The IRS has accepted scanned receipts since 1997, a policy that was memorialized by Rev. Proc. 97–22 (downloads as a pdf). You just need to ensure that your scanned or electronic receipts are as accurate as your paper records and you must be able to index, store, preserve, retrieve, and reproduce the records. In other words, you need to have your records organized and be able to produce them in a hard copy form if needed.
A quick word of warning: even if records aren’t needed for tax reasons, you may need them for other reasons. Make sure that you check with your mortgage company and tax professional before tossing important records.
Need some helping getting organized? Maybe a scanner could help you out. Together, with the good folks at Neat Company, I’m giving one away! You could win a NeatDesk with 3 free months of access to NeatCloud and NeatMobile. NeatDesk is a high-speed, duplex desktop scanner and Digital Filing System: you can scan receipts, business cards and documents in one batch while the software identifies, extracts and organizes key information. With NeatCloud, NeatCloud securely backs up your Digital Filing System, and allows you to add to it – or access it – from anywhere while NeatMobile turns your smartphone or tablet into a handy Neat scanner.
It’s easy to register for a chance to win. All you have to do to enter is share your best tip for getting organized (it doesn’t have to be restricted to tax records or documents). Leave your response in the space below as a comment (free registration required on Forbes.com). I’ll choose a winner at random from all of the entries.
Here are some more rules because, as you know, I’m a lawyer and I like rules:
- Entries must be posted in the comments section for this blog post in the space below by 11:59 p.m. EST on April 22, 2012.
- While I love my twitter followers and my Facebook fans, responses on Twitter or Facebook will not be included for purposes of the contest. Ditto for emails. Comments have to show at this post below.
- Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts. You can enter as many times as you like but you must leave a different story each time you comment.
- Offensive comments or comments that otherwise violate the comment policy will be deleted and will not be considered valid for purposes of the contest.
- Pingbacks and other links will be disregarded for purposes of the contest.
- I have to be able to contact you. I won’t publish your email address but I do need contact information for the winning entry.
- Due to shipping considerations, only United States addresses, please. Sorry, Canada, eh?
- I respect your privacy and I will not send you anything unrelated to your entry in this contest.
- By entering the contest, you agree that I may post any part or all of your submission including your name as a part of the contest announcements or promotions, with the exception of your email address.
Comment away!
