All your recordkeeping has been gathering dust on the top shelf of your closet, and every time you open the door to look for something, you get pegged with a box of tax records and receipts from who-knows-when. Ready to pitch the whole mess? Well, maybe you can – but hold on a second.
Some records – receipts from charities, cancelled checks for medical deductions, your W-2s – should be kept for three years. That’s how long the IRS can wait to audit your finances. And this information, providing you stashed it away, can help prove you deserve the deductions or credits you took.
But there are circumstances that will extend the IRS’s snoop time. Under-report your income by 25 percent or more, and they can audit you up to six years after you file. And if you don’t file at all, there is no cutoff – you can be audited indefinitely.
So for this tax year and two years previous, you need to keep copies of your returns along with these documents:
- Receipts showing cash contributions to charity
- Medical expenses not covered by insurance
- Work-related expenses you paid, but not paid by your employer, and
- Business travel or entertainment costs of more than $75.
But some records need to be kept even after you’re out of the woods, audit-wise. For example, keep a copy of your income tax return and the IRS acknowledgement or acceptance document for every year you’ve filed. If the return is four years old or older, you can destroy the supporting documents – all those receipts and so forth – but keep the return itself and the IRS confirmation.
Using a Digital Toolbox
To lighten your storage load (goodbye, paper avalanches), consider getting a flatbed scanner. Scan those documents into your computer and keep the electronic version on a CD or flash drive. Each CD can hold thousands of pages of documents, so storage space is no longer a problem.
Also see: Taxes and Recordkeeping