By Raymond S. Kulzick, CPA, DBA
As published in the Pinecrest Tribune. February 16, 1998.
How long should I keep copies of my tax returns and other tax records?
People seem to fall into two groups: Those who keep everything and those who keep very little. When it comes to tax records, it's important to understand what records you need to keep and for how long.
Copies of your tax returns should be kept permanently. We have encountered several types of problems relating to old tax returns.
First, the IRS may claim that you did not file a tax return for some past year. The government does not keep paper or microfilm copies of returns for long periods of times. If their computer says you haven't filed, you need to be able to prove that you did, even years later. It is possible that continuing IRS computer upgrades sometimes lose or damage records, although the IRS denies this.
A second problem may occur when, after years of work, you finally retire and apply for social security benefits. When you examine your earnings record, you discover that earnings for some years are missing or incorrect. There may be many reasons for this, including the assignment of duplicate social security numbers, the failure of your employer to file their copy of the W-2 forms, and errors at the Social Security Administration. Regardless of the reason, your retirement benefits are dependent on your earnings record and your best protection is to be able to present copies of tax returns and W-2 earnings statements.
Detail records also need to be kept, sometimes for years. Records for any asset you purchased that may affect taxes when it is later sold, need to be kept until at least four years after the sale. Examples would include business equipment, rental property, a home, home improvements, a timeshare or vacation home, and stocks or other investments. If you make a gift of property, the recipient of the gift usually needs to have proof of the cost to you.
In general, other detail records (for example, sales invoices in a business and receipts for charitable contributions for an individual) need to be kept until the statute of limitations for tax examinations has expired. Usually, this is 3 years for the IRS and 5 years for the State of Florida (Note: as of 7/99, Florida is gradually bringing it's requirements into alignment with the IRS's 3 year period). This time begins at the later of when the return was due or when you actually filed. However, there are many exceptions and you should consult a professional before disposing of any important records. There is no statute of limitations for years in which the IRS claims you have substantially understated income or failed to file. There may also be reasons other than taxes why business records need to be retained.
Maintaining adequate records and keeping them safe can prove critical at some future date. If in doubt, your tax professional should be able to advise you regarding your specific situation.
Raymond S. Kulzick is a CPA, and technology and management consultant with offices in Pinecrest at 12177 S. Dixie Highway. If you have questions or suggestions for future columns, please contact him at 305-233-2280 or rkulzick@kulzick.com. More information is also available on the firm's Web site at http://www.kulzick.com/businesspro.
This article provides information of a general nature only and should not be acted upon without seeking appropriate professional advice concerning your specific situation.
Related pages:
Records - Which to Keep
and When to Discard Them
Kulzick Associates
PA - Tax Services
© Copyright 1998 Raymond S. Kulzick. All rights reserved. 980216
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.