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Spring Cleaning: Tax Records You Can Throw Away

Spring is a great time to clean out that growing mountain of tax and financial papers that clutters your home and office. Here’s what you need to keep and what you can throw out without fearing the wrath of the IRS.

The Three-Year Rule

For assessment of additional taxes, the statute of limitation runs generally three years from the date you file your return. If you’re looking for an additional refund, the limitations period is generally the later of three years from the date you filed the original return or two years from the date you paid the tax. Once that period has expired, the IRS is legally prohibited from even asking you questions about those returns.

There are some exceptions:

If you don’t report all your income and the unreported amount is more than 25% of the gross income actually shown on your return, the limitation period is six years.

Do not throw the following documents:

  1. Capital gains and losses. Your gain is reduced by your basis — your cost (including all commissions) plus, with mutual funds, any reinvested dividends and capital gains. But you may have bought that stock five years ago and you’ve been reinvesting those dividends and capital gains over the last decade. And don’t forget those stock splits.

So you don’t ever want to throw these records away until after you sell the securities. And then if you’re audited, you’re going to have to prove those numbers. So you’ll need to keep those records for at least three years after you file the return reporting their sales.

If the profit is more than $250,000 ($500,000 on a joint return), or if you don’t qualify for the full gain exclusion, then you’re going to need those records for another three years after that return is filed. Most homeowners probably won’t face that issue thanks to the 1997 tax law.

The bottom line is that you’ve got to keep those records until they can no longer affect your tax return, plus the three-year statute. But that’s just for tax purposes.

You can confirm your payments and estimate your future benefits by filing Form SSA-7004 with the Social Security Administration. You can download the form here [1], or apply online.

Author

  • Chuck is managing partner of Chuckuemeka & Associates, a nationally focused CPA firm specializing in Accounting, Auditing, Consulting and Tax Advising.

About Chuck Chuckuemeka [2]

Chuck is managing partner of Chuckuemeka & Associates, a nationally focused CPA firm specializing in Accounting, Auditing, Consulting and Tax Advising.

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