E-filing is on the upswing. According
to the Data Book recently released by the
IRS, the agency processed 240 million returns during
its last fiscal year, of which 59 percent, or 151
million, were filed electronically. Of the 146
million individual income tax returns filed, almost
83 percent were e-filed.
You might think those numbers suggest we are close
to becoming a paperless society, at least when it
comes to the IRS. That would be a wrong assumption.
Even if you recently filed your 2013 tax return
electronically, you probably printed out a hard copy
for your files. Add that paper to the financial
reports, bank statements and other documents you've
been holding on to for years and it is likely your
filing cabinets are overflowing with paper.
Now that you have filed your tax return, take time
to do some spring cleaning.
Boris Benic &
Associates will help you sort out what can be thrown
away and what should be kept.
But you cannot just dump old tax records without
giving the process some thought. Some of the
documents may still be valuable in case the IRS ever
Audits and Amended Returns
You should generally keep records supporting items
claimed on your individual tax return until the
statute of limitations runs out. Typically, that is
three years from the due date of the return or the
date you filed, whichever is later. So this year you
can generally toss out your tax records for the 2010
tax year and most paperwork you have left from
earlier years, but keep your files for the past
three tax years.
This is because the IRS can audit your returns for a
minimum of three years. You can also file an amended
return on Form 1040X during this time period if you
missed a deduction, overlooked a credit or
But you are not necessarily safe from an audit after
three years have passed. There are a couple of key
exceptions to this general rule:
1. The statute of limitations increases to
six years if the IRS has reason to believe you
understated your income by 25 percent or more, and
2. There is no time limit if
the IRS suspects fraud or you do not file a tax
Various Retention Requirements
Keeping records for three years is the general rule.
There are exceptions for certain records. Perhaps
not surprisingly, there is no easy answer to the
question of how long you should keep specific
papers. The IRS does not require you to keep records
in any particular way. But here are some basic
guidelines for individuals to follow. (See
right-hand box for business guidelines.)
Completed tax returns. Some
tax advisers recommend that you hold onto copies of
completed, filed returns for your lifetime. The
reason is so you can prove to the IRS that you
actually filed if there's ever a question about it.
Even if you don't keep the returns indefinitely, you
should hang onto them for at least six years after
they are due or filed, whichever is later.
Backup records. Any
written evidence that supports figures on your tax
return, such as receipts, expense logs, bank notices
and sales records, should generally be kept for at
least three years.
are times when you may be entitled to more than the
usual three years to file an amended return. For
instance, you have up to seven years to take
deductions for bad debts or worthless securities, so
don't toss out records that could result in refund
claims for those items.
Real estate records. Keep real
estate records for as long as you own the property,
plus three years after you sell (or otherwise
dispose of) it and report the transaction on your
tax return. Throughout ownership of the property,
keep records of the purchase, as well as receipts
for home improvements, insurance claims, and
documents relating to refinancing. These may help
prove your adjusted basis in the home, which is
needed to calculate the taxable gain at the time of
sale, or to support calculations for rental property
or home office deductions.
accurately report taxable events involving stocks
and bonds, you must maintain detailed records of
purchases and sales. These records should include
dates, quantities, prices, dividend reinvestment,
and investment expenses, such as broker fees. Keep
these records for as long as you own the
investments, plus the statute of limitations on the
relevant tax returns.
Individual Retirement Accounts (IRAs). The
IRS requires you to keep copies of Forms 8606, 5498
and 1099-R until all the money is withdrawn from
your IRA accounts. Now that Roth IRAs have been
added into the mix for some retirement savers, it's
more important than ever to hold onto all IRA
records pertaining to contributions and withdrawals
in case you're ever questioned. If an account is
closed, treat IRA records with the same rules as
securities. Don't dispose of any ownership
documentation until the statute of limitations
Issues affecting more than one year. Records
that support figures affecting multiple years, such
as carryovers of charitable deductions, net
operating loss carrybacks or carryforwards or
casualty losses, should be saved until the
deductions no longer have an effect, plus seven
years, according to IRS instructions.
These general recordkeeping guidelines are for
individual tax purposes. Businesses, insurance
companies and creditors may have other requirements.
Contact your advisers for more information.
Last word: One
critical step to take when cleaning out financial
documents is to shred them thoroughly before you
toss them out.
For more detailed information, please call
Boris Benic at 516-248-7361 or click
here to email Boris Benic. He would be happy to
address any questions
you may have.
Thomson Reuters/Tax & Accounting