Receipts and financial records hold a high level of importance – in both our personal lives and professional lives. According to the IRS, the disposal guidelines for financial documents are different for each type of record.
It is important to retain financial records for the period associated with limitations if those records are listed as a source of income, a credit, or a type of deduction on a tax return.
In this brief guide, we will outline very specific disposal guidelines that will help you in determining how long financial records must be kept and when it is safe to dispose of those documents.
What is a Period of Limitations?
In order to determine the appropriate disposal guidelines for receipts and other types of financial records, let’s understand what a period of limitations is.
Basically, this is the time frame when you have the capability of amending the tax return that you submit to the Internal Revenue Service or the time in which the IRS may impose additional taxes on you.
This time period starts upon submission of the tax return to the IRS. The following outlines the most current period of limitations, according to the Internal Revenue Service:
- If you file a claim after the submission of your tax return to the IRS, you should keep all associated records for 3 years.
- If you have a loss from a worthless security or a deduction from a bad debt, you should keep your records for at least 7 years.
- If you fail to report income in the appropriate year, you should keep all records for at least 6 years.
- If you do not file a return, all financial documents should be retained indefinitely.
- If you file a return that is considered to be fraudulent, all records should be kept indefinitely.
- Employment tax records should be kept for at least 4 years.
- If none of these situations apply to you, all financial records and receipts should be retained for a period of at least 3 years.
Financial records such as receipts, statements, and proofs of expenses are essential to your financial livelihood. Each year, most of us are required to file a tax return. As a result, you should become familiar with the period of limitations outlined in this post. To ensure the highest level of security when it comes to record maintenance, keep all financial records for a period of up to 7 years, or even longer.
In most instances, the Internal Revenue Service has the capability to assess additional taxes on individuals within 6 years of the filing of a return. If you keep your records for at least 7 years, you will be thoroughly covered and protected.
For more information on how long to keep records and how to organize those financial records, visit one of our Somerville National Bank branches today for assistance: http://somervillebank.net/