3 Year Tax Record Rule

In general, you should retain records pertaining to your tax return of a given year for at least three years. But keep in mind that there are always exceptions and that you should always consult with a tax professional regarding your tax situation before tossing out any documents that may be needed later as proof. To get you started here is a brief list of documents and considerations:

Capital gains and losses. While you own the investment these records should never be thrown out because investing and reinvesting is a cycle that occurs over many years or decades – you never know how far back you will have to go to prove numbers in the case of an audit. Once the investments are sold then those records should be kept for minimum of three years after having filed a return that reports the sale of such.

Home expenses. Records relating to expenditures and upgrades should be accessible until the property is sold. Due to the 1997 tax law, homeowners profiting from a sale reported on a tax return of $250,000 individual $500,000 joint or less will not be subject to taxes for that sale. Even so, it is still a wise habit to keep related records for at least three years.

Business records. When in doubt hold on to business tax records. For example, non-residential real estate can now be depreciated for over 39 years and after filing the return for the 39th year that return in worse case may be audited within the three year period that follows the filing.

Employment, banking, and brokerage documents. All W-2s, 1099s, brokerage, and bank statements should be kept for a minimum of three years after being used to file taxes. This also goes for supporting documentation such as receipts, mileage logs, diaries, checks, reimbursements, checks, and so on.

Tax returns. Consider the three-year statute of limitations and how long you think that it will no longer affect your future tax filings. A prudent habit is to keep your tax returns for at least 6 years after the date of filing.

Social security records. Make it a habit to eye-ball the quarterly statements that you get from the Social Security Administration or try to check it online at ssa.gov, make it a habit to confirm once a year that your payments have been credited to your account. If there is a discrepancy then you‘ll be happy you kept income records to reconcile and prove the correct amount.

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