How Long Do You Need to Keep Your Records?

By law, you must keep your tax records for as long as they are needed for the administration of the Internal Revenue Code. Generally, this means you must keep the documents supporting the income and deductions shown on your tax return until the statute of limitations for that return expires.

The IRS has three years from the date you filed your return to assess any additional taxes you owe. If you did not report all of your income and the unreported amount is more than 25 percent of the gross income you reported on your return, the IRS has six years from the date of the return to assess additional taxes. If you failed to file a return or filed a fraudulent return, there is no statute of limitations preventing the assessment of additional taxes.

You have three years from the date you filed your return or two years from the date you paid the tax, whichever is later, to file a claim for a credit or refund. If you filed your return prior to the due date, it is considered filed on the due date.

Following are some general rules for determining how long to maintain your important personal tax records:

• Federal and state income tax returns: These should be kept for a minimum of three years, although it may be more prudent to keep them for six years, because the IRS can go back that far if there is a material misstatement of income. Also, keep the registered mail receipts with the return.

• Supporting documents such as W-2s, 1099s, canceled checks, and so on that verify income and deductions: These should be maintained with the returns on which the information was reported for as long as the returns are kept.

• Residential property: You should keep all settlement records for your home purchases and any records relating to improvements that were made for as long as you own your home. If you sell your home, you should maintain these records for as long as you keep the tax return that was filed for the year of the sale.

• Investment property such as stocks, bonds, mutual funds, and so on: You need to maintain records showing the purchase date and the purchase price for each individual investment for as long as you own the investment. When you sell an investment, these records will be used to determine whether you have a gain or a loss, and if the gain/loss is short-term or long-term. Maintain the records related to the sale of an investment with the tax return on which the sale was reported.

• Nondeductible IRA contributions: These records need to maintained indefinitely. They will be needed to determine the nontaxable portion of your required IRA distributions.

• Depreciable property: For all rental real estate or depreciable property, you need to maintain records showing the purchase date, cost of the property, the date and cost of any improvements to the property, and a depreciation schedule showing the method used and the depreciation taken for all of the years that you owned the property. These records should be kept until you sell or dispose of the property, and should be kept with the tax return on which the sale was reported.

• Personal records such as birth certificates, marriage licenses, divorce agreements, wills, copies of estate and gift tax returns, and so on: These should be maintained in a permanent file. They are very important documents that may be needed to verify information on a tax return, but are also needed in various life situations.

Hopefully this has provided you with some insight as to how long you need to keep important records.

Roger and Yolanda can be reached at R.B.S. Tax Services (see their ad elsewhere in this publication). To purchase their book, The Tax Guide for Gamblers 2001 Edition, call (800) 829-7271. For questions or comments, write to: R.B.S. Tax Services, 8370 W. Cheyenne, Suite 109, Las Vegas, NV 89129. For a collection of articles and other tax information, visit their website at www.rbstaxes.com.