One of the questions that I get asked frequently as a CPA, is “How long should I hold onto this?” In my inaugural article, I would like to provide some direction.
The question gets asked most often with regards to income tax returns. Generally speaking, you should keep your tax returns and all documents supporting the numbers on the return for 3 years after you filed the return, or two years after you completed payment of the tax shown on the return, whichever is later.
The reason for this is that until that time, you can file an amended return, or the IRS can audit you and assess additional tax. Some exceptions to this rule exist.
Keep records for 7 years if you claim a loss from worthless securities or bad debt.
Keep records for 6 years if you underreport income that is more than 25% of the reported income.
Keep records indefinitely if you file a fraudulent return, or do not file a return.
All records relating to property (income or deduction producing) should be kept with the final tax return showing the sale or disposition of that property. Those records can be disposed of with that tax return. So, the documents relating to the purchase of your home should be kept for at least 3 years after you sell your home, as there is a possibility of a tax liability upon the sale. Same thing with records relating to stock or collectible purchases.
Please remember that you may need to keep records for purposes other than tax liability, such as for creditors or insurance purposes.
Moshe Pelberg is a CPA in Baltimore. He welcomes your questions or comments about this article, or any other tax matter. He can be reached at 410-963-1247 or
mpelberg@moshepelbergcpa.com
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