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Recent articles by Jeff Schnepper: • 6 ways to keep the IRS at bay, 9/28/2005 • The IRS does its part for Katrina's victims, 9/20/2005 • 5 tax myths that can cost you money, 9/18/2005 More... |
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You can transform that mountain of papers into a molehill without fearing IRS wrath. Here's exactly what you need to keep -- and how long. By Jeff Schnepper I can build a papier-mache replica of the Empire State Building with my old tax records. You, on the other hand, have more sense. Unless financial nostalgia brings you a warm feeling on a cold night, you'll want to dump your old records as soon as possible. But you "know" that within two weeks of your bonfire, the IRS is going to demand exactly those documents you burned. So what are the rules? What information do you have to keep and for how long? Let's start with your magic shield of absolute protection from the IRS -- the statute of limitations. This limits the number of years during which the IRS can audit your tax returns. Once that period has expired, the IRS is legally prohibited from even asking you questions about those returns.
The concept behind it is that, after a period of years, records are lost or misplaced, and memory isn't as accurate as we might hope. There's a need for finality. Once the statute of limitations for a certain year has expired, the IRS can't go after you for additional taxes. But you can't go after the IRS for additional refunds, either. How the three-year rule works For assessment of additional taxes, the statute of limitation runs generally three years from the date you file your return. If you're looking for an additional refund, the limitations period is generally the later of three years from the date you filed the original return or two years from the date you paid the tax. There are some exceptions:
Assuming that you've filed on time and paid what you should, you have to keep your tax records only three years. But some records have to be kept longer than that. Remember, the three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old. Here's checklist of the documents you should hold onto.
If you have a Social Security question The bottom line is that you've got to keep those records until they can no longer affect your tax return, plus the three-year statute. But that's just for tax purposes. You will need to keep some records for Social Security purposes. So, check with the Social Security Administration each year to confirm that your payments have been appropriately credited. If they're wrong, you'll need your W-2 or copies of your Schedule C (if self employed) to prove the right amount. Don't dump those records until after you've validated those contributions. You can confirm your payments and estimate your future benefits by filing Form SSA-7004 with the Social Security Administration. You can download the form here, or apply online (see link at left). Yes, holding all these records might someday bring you some psychological satisfaction as you review your financial journey from poverty to wealth. But if you still have tax returns that were filed with Roman numerals, it's probably time to clean out your attic. | |||||||||||||||
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