The Internal Revenue Service (IRS) wants taxpayers to keep their financial documents and tax records for a number of years just to be safe. The time period will depend upon the type of financial record, the status of the taxpayer and the amount of said investment. Here is how long to keep income tax records for.
“Different Types of Documents”
The IRS realizes there must be a delicate balance between the realistic expectation that you will need financial documents in the future and the time, expense, space and organization required for the storage of these valuable records. Ideally, the IRS wants you to keep all of your records forever, but that just is not feasible. Thus, the IRS offers a period (statute) of limitations in handling tax affairs, which denotes how long to keep your records.
Tax authorities will advise that your retention of documents depends upon your tax position, the type, the action, the expense and the event. An individual who does not need to file taxes due to low income will have a different storage plan then a corporation that has just gone through a merger. The size and diversification of your portfolio will create different time periods for each of your asset classes.
The IRS period (statute) of limitations is the guideline for determining how long you should keep your old financial records. Here is a rough guide for how long you should keep each type of record:
+ Employment paychecks and bank account statements for two (2) years
+ Federal tax returns for three (3) years
+ Asset-based financial documents seven (7) years
Generally, taxpayers have a window of about 3 to 4 years to deal with their primary tax return issues. Most employment receipts will already be reflected on the W-4 form. Bankruptcy can last from 7 to 10 years; thus, it is wise to keep these records for that long.
“You might be audited”
You never know when you might be audited. The IRS would like you to keep records generally for seven (7) years in case you are audited. The tax bureau has the authority to review any of your financial records, if they suspect fraud.
If you owe back taxes, then you need your financial documents to show the correct amount. Banks and insurance companies may have different record-keeping rules than the IRS, so check with them before discarding old financial records.