CARL WATTS & ASSOCIATES

November 09, 2015

www.carlwatts.com
office@carlwatts.com
Washington DC
 tel/fax 202 350-9002
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Whether a “shoe box” adept or a “cloud” believer, we each have documents or records that need to be well kept. There is no intention here of discussing your well organized filing system, or the hidden system behind the apparent chaotic desk drawer. Our purpose here is to inform you what kind of documents you need to keep and for how long from the taxation point of view.


The first thing to know is that records such as receipts, canceled checks and other documents that support an item of income or a deduction, or a credit appearing on a return must be kept for so long as they may become material in the administration of any internal revenue law, which generally will be until the period of limitation expires for that return. For assessment of tax you owe, this generally is three years from the date you filed the return. Returns filed before the due date are treated as filed on the due date.

There is no period of limitations to assess tax when a return is fraudulent or when no return is filed. If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is six years from when the return is filed.


For filing a claim for credit or refund, the period to make the claim generally is three years from the date the original return was filed (or the due date for filing the return if the return was filed before that date), or two years from the date the tax was paid, whichever is later.

For filing a claim for an overpayment resulting from a bad debt deduction or a loss from worthless securities, the time to make the claim is seven years from when the return was due.

Here are some examples of tax-related documents that you might want to keep:

  • W-2 forms;
  • Pay stubs for the year;
  • Mortgage payment stubs and/or home purchase closing statement;


  • Previous year's tax return (for quick reference and comparison);
  • Receipts from anything you might claim as an itemized deduction;
  • Receipts from any charity (e.g. for church tithes, disaster relief donations, etc.);
  • Car mileage log and/or other car expenses in case of business use;
  • Any receipts for business travel expenses;
  • Canceled checks (especially for IRA contributions and other deductions);
  • Credit card statements and bank statements (to verify any deductions);
  • Medical bills (especially if they exceed 10% of your income);
  • 1099-G form for deducting state or local income taxes;
  • 1099 forms (for any income paid to you);
  • Mobile phone bills (especially if you made charitable donations by text message);
  • Starting with tax year 2014, you should keep records of your own and your family members’ health care insurance coverage, including records of employer provided coverage or premiums paid and type of coverage for private coverage, so you can show that you and your family members had and maintained required minimum essential coverage.
Tax Related Record Keeping

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If you are claiming the premium tax credit, you will need information about any advance credit payments you received through the Health Insurance Marketplace, the premiums you paid, and the type of coverage you obtained at the Marketplace. If you or any of your family members are exempt from minimum essential coverage, you should retain certificates of exemption you may receive from the Marketplace or any other documentation to support an exemption claimed on your tax return.

If you are in business, there is no particular method of bookkeeping you must use. However, you must use a method that clearly and accurately reflects your gross income and expenses. The records should substantiate both your income and expenses.

The IRS recommends that you keep all tax-related records for three years in case of an audit. Here are some examples:

  • Payment records (canceled checks, credit cards payments);
  • Invoices/bills cross referencing the business expense;


  • Receipts that itemize purchases and method of payment;
  • Records of donations or charitable cash or non- cash contributions;
  • Receipts for meals and entertainment;
  • Mileage records;
  • Income records.


Some records should be kept indefinitely or for longer periods of time:

  • Records relating to property (real estate or stock) should be kept indefinitely to show the amount of gain or loss if the property is sold, plus the three-year statute of limitations;
  • Copies of your tax returns should also be kept indefinitely;
  • Records relating to a claim for a tax refund or tax credit based on bad debts or losses on worthless securities should be kept for at least seven years;
  • Records relating to a net operating loss which can be carried back 5 years and forward 20 years should be kept until all operating losses are used and the carry-forward term expires plus the three-years statute of limitations;
  • If you have employees, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later.


Keeping track of all these records will help you prepare and support all your tax return information and at the same time help you get rid of all unnecessary paper burden. Poor or no records result in missed deductions and higher taxes.


Of course, going paperless with your tax documents not only is good for the environment, but also allows more flexibility with your filing system.

But, no matter if we’re talking about paper documents or computer files, keeping them safe and secure from disasters and identity theft has become a necessity nowadays. Make sure you backup all your computer stored documentation and that you shred thoroughly all the paper documentation that you do not need to keep any longer.

If you have any doubts about the records you need to keep, contact your tax or financial advisor before taking any rushed action.