As tax season is winding down, with less than a week left to file your 2011 returns or an extension in the United States, I thought about purging some of my old files. I tend to keep a lot that may not be necessary. Generally, you need to keep supporting records of income or deductions until the period of limitation set by the Internal Revenue Service runs out. This period is that in which you can amend your return to claim a credit or refund or the IRS can assess additional tax. Here are some guidelines, according to IRS Publication 583 (Starting a Business and Keeping Records).
1. For most tax returns filed on time with tax paid, keep supporting records for three years after the filing deadline, the extension deadline or the actual filing date, whichever is later.
2. If you had income that you should have reported (but did not) that was 25% in excess of your gross income, keep records for six years after your final payment was made.
3. If you have employees, keep all employment tax records for four years after the employment tax became due or was paid, whichever is later.
4. Keep records to support any deduction for bad debt loss for seven years.
5. In cases of someone required to file a return (and does not) or in the case of fraudulent returns, the IRS requires records be kept indefinitely.
6. Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property.
Those are IRS requirements. You may have other reasons for keeping records longer, e.g., insurance or business valuation. If you do, it would be a good idea to make copies of your records and returns and keep them on a CD (or DVD) and store them offsite.
Do you have any tips for keeping records? Please share your thoughts below.