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How long do you need to save tax records?

Posted July 2015

Perhaps one of the most repeatedly asked questions of accountants (just ahead of "Why is my neighbor paying less in taxes than I am when we both are the same?").  So I will try to address it simply.

Audits can occur any time up to 3 years after you filed the return, including due dates.  So to be simple, I usually suggest 5 years.

What do you need to save?  Only those items that support deductions (or the income reported for a business, etc.) taken on a tax return.  You do not need to save grocery receipts unless, i.e., you run a Child Care facility out of your home. You don't need to save utility bills unless you are claiming an office-in-home deduction.  

If it is not tax related, you do not need to save it.

Me … I save things for 7 years, probably because I am compulsive (and too lazy to thin things out).  And now that I store everything electronically, I don't even think of deleting items (because I never know when I will need to see what I paid for a burrito at Chipotle in 2008 frown  ).

There are some things to save regardless of tax consequences.

Purchases of big ticket, expensive, type items … you want to save those for insurance purposes.  Keep those in a separate file.  Or better yet, scan them and save them as part of your Quicken file.

One caution: If you have underreported your income by 25% or more, the statute of limitations has not started running so you need the records then for all such years if audited.

Caveat:  I am not an attorney and do not play one on TV.  I am also not an insurance agent.  The preceding are just guides and if you have more detailed questions about such records, please speak with your attorney, insurance agent, or your CPA.

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