You have finally finished filing your 2017 income tax return (or sent a request for an extension). Now that tax season is over your office is cluttered with piles of paper consisting of years’ worth of tax returns, receipts, canceled checks and other financial records (or tax files cover your computer desktop), and it’s time to shred what you can. Follow these retention guidelines as you clean up.
For records that back items on your tax return, keep them at least until the statute of limitations runs out which is usually three years from the date you filed or the due date of the return, whichever is later. That means you might be able to finally throw out records from the 2014 tax year if you met the regular filing deadline. However, you should keep some records longer.
For example, there’s no statute of limitations for filing a fraudulent tax return or if you fail to file one. To show you filed a legitimate return, keep copies of your returns permanently.
Also realize, the statute of limitations will be six years if you understate your gross income by more than 25%.
Some specifics for businesses
Records substantiating costs and deductions associated with business property are needed to determine the basis and any gain or loss when the property is sold. According to IRS guidelines, you should retain these records for as long as you own the property, plus seven years.
The IRS recommends keeping employee records for three years after terminating an employee. Also, you should maintain records that support employee earnings for at least four years. (This timeframe generally will cover different federal and state requirements) also keep employment tax records four years from the date the tax was due or the date it was paid, whichever is longer.
The statute of limitations period is three years for travel and transportation expenses supported by mileage logs and other receipts.
Regulations for sales tax returns vary by state. Holding periods typically range from three to six years so, make sure to check the rules for the states where you file sales tax returns.
When in doubt, don’t throw it out
After years of filing tax returns, it’s no surprise that there will be mountains of physical and digital paperwork. If you’re wondering whether you should keep a document, an excellent way to decide is hold to the record for six years or if it’s a property related record hold on to it for at least seven years after you dispose of the property. Again, keep tax returns permanently, and additional rules or guidelines could apply in certain situations. Give us a call if you have any other questions.
© 2018 https://www.brscpa.com/
Ben R Shull CPA LLC provides clients with tax, transaction, and advisory services. The insights and quality services we deliver help lead our clients through the next generation of changes, and accelerate growth while reducing risk. CPA Katy, TX.