What Tax Records Can You Toss Once You’ve Filed Your Return?

The short answer is: none. You need to hold on to all of your previous year tax records for now. But this is a great time to take a look at your records for prior tax years and determine what you can eliminate.

I handled a tax audit for a new client's business a couple of years ago. The state did not have record of his company's sales and use tax returns for 2005 to 2007, and requested copies of these documents. To prove the filing and payment of the taxes to the state, I asked the client for copies of the returns, certified mailing receipts and cancelled checks. He told me he filed these returns, paid the taxes, but does not keep copies of any documents 3 years after of the filing date of his return. As a result, the state assessed over $35,000 of taxes, interest and penalties for these years.

The 3-Year Rule – Not Necessarily a Text Book Answer

At minimum, keep tax records for as long as the IRS or other agencies has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you can usually destroy many records related to tax returns for three years prior to the current year and earlier.

What to Keep Longer – Guilty until Proven Innocent

You will need to hang on to certain records beyond the statute of limitations.

• Keep copies of all tax returns, proof of filings and proof of tax payments permanently. The statute of limitations does not start unless you can prove you filed a return and paid your taxes.
• For W-2 forms, consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.
• For records related to real estate or investments, keep documents as long as you own the asset, plus three years after you sell it and report the sale on your tax return.

Just a Starting Point – Uncertainties Exist

This is only a brief sampling of retention guidelines for tax-related documents, as there can be some uncertainty in how long to retain records. In some cases such as alleged underreporting of revenue or unjustified deductions, tax agencies may successfully expand the statute of limitations. If you have questions about document retention or need assistance with other tax or accounting matters, please contact Robert Charlton, CPA, and Partner at (973) 383-6699. Or, send an email request to rcharlton@nisivoccia.com for a copy of our Records Retention Schedule.