Wouldn’t it be great if there was a simple answer to the question, “How long should I keep my tax records?” Unfortunately, with both federal and state laws involved and a huge variety of individual situations, the answer isn’t as easy as you might think. We took a closer look to help you understand how long to keep your tax records.
For federal taxes, the general rule of thumb is three years. However, state taxes vary. For the state of Florida the three year rule does apply as well, but most states require four or more -check with your state to see how long you should keep state tax records.
Although the three years guideline is generally a good place to start, the length of time required for keeping electronic and paper records depends on your individual situation. The actual IRS requirements are a little more complicated. Use these rules to insure you’ll be safe in case of an audit.
Keep all income records for three years, unless you’re in one of these situations:
- Not all income was reported, and it’s more than 25% of the gross income shown on your return. If you’re in this situation, keep records for six years.
- You didn’t file a return. Keep these records permanently.
- You filed a fraudulent return. Whether it was intentional or not, keep these permanently.
In addition, be sure to follow these guidelines:
- If you filed a claim for credit or a refund after filing the return, keep the record for three years after the file date or two years after the IRS paid the claim, whichever is later.
- If you filed a claim for a loss from worthless securities or a bad debt deduction, keep the records for seven years.
- Keep employment tax records for four years after the tax is due or you paid the tax, whichever is later.
- Records for the basis of capital assets need to be separated and not be discarded before the statute expires for the year the asset was disposed of.
- Keep records for stock acquisition, home and rental property purchase as well as associated capital improvements for at least 4 years after they have been sold.
In the case of an audit, following these guidelines will keep you safe. Most accounting firms keep everything for seven years, just in case. To learn more about taxes and finances, please contact us. We’re always happy to help!