Can I Trash It Now? Tax Record Retention Guidelines

Papers, papers and still more papers.  When can I destroy these documents?

There are no hard and fast rules in this area.  The following offers some general guidance to carefully consider when determining any destruction of documents.

Against the urge to purge, remember that maintaining documents and records is often essential if a tax audit by the IRS, state or local taxing authority occurs.  Be aware that it is the burden of the taxpayer to provide sufficient proof and support for any tax position taken on a tax return.  Prematurely disposing of relevant documentation and proof supporting a tax deduction or tax position could have a disastrous tax impact.

Tax rules offer some guidance as to minimum document retention periods. It is imperative to keep records such as receipts, canceled checks, and other documents that support an item of income or a deduction, or a credit appearing on a return until the statute of limitations expires for that return. Here are some of the key statute of limitation rules for federal tax returns:

• For most returns the statute of limitations is 3 years from the date you filed the return. However, the following are some very important exceptions to this 3 year statute of limitation.
• There is no period of limitations to assess tax when a return is fraudulent or when no return is filed.
• If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is 6 years from when the return is filed.
• For filing a claim for credit or refund, the period to make the claim generally is 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later.
• For filing a claim for a loss from worthless securities the time to make the claim is 7 years from the date the return was due.
• If you are an employer, you must keep all of your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.

Additionally, it is often imperative to check state and local statute of limitation rules before destroying files and records.

Keep in mind that documents may need to be retained and preserved for legal reasons other than taxation, such as, insurance claims or facilitating the transfer of  assets in the case of deceased family member.  Documents like death certificates, estate tax closing letters should be kept indefinitely.

For more detailed guidance on how long to keep specific documents and other document retention considerations and safeguards, please read my article Record Retention For Individuals .

For more detailed guidelines for record retention rules and other protective housekeeping measures for businesses see Record Retention Guidance For Business: A Conservative and Basic Approach.

A discussion with your tax attorney and tax accountant may be a prudent and conservative course of action before destroying any documents or files.