As tax season rolls around, one question that many taxpayers grapple with is how long they should keep their tax information. While the answer may vary depending on individual circumstances, there are some general guidelines that can be followed to ensure that you keep important documents for the appropriate length of time.
To begin with, it’s important to remember that the Internal Revenue Service (IRS) typically has three years from the date of your original tax return to audit it. This means that, in most cases, you can safely dispose of your tax documents after three years have passed. However, there are some exceptions to this rule.
For example, if you fail to report all of your income or you file a fraudulent tax return, there is no time limit on when the IRS can audit you. Additionally, if you file a claim for a loss from worthless securities, you should keep your records for seven years.
If you own property, such as a home or stocks, you should also keep documentation related to these assets for as long as you own them, plus three years after you sell them. This can help you determine your cost basis when you sell the property and calculate any capital gains or losses.
In addition to keeping records for tax purposes, it’s also important to hold onto certain documents in case you need them for other reasons. For example, you should keep copies of insurance policies, medical bills, and legal documents indefinitely, as these may be needed in the event of a dispute or lawsuit.
When it comes to storing your tax documents, it’s best to keep them in a safe and secure location, such as a fireproof file cabinet or a digital cloud account. Make sure to keep physical copies in a dry place, away from potential water damage, and keep digital copies in a password-protected account.
Overall, while there is no one-size-fits-all answer to how long you should keep your tax information, following these general guidelines can help ensure that you keep important documents for the appropriate length of time. By taking the time to organize and securely store your records, you can make tax season a little less stressful and avoid potential headaches down the road.
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