If you have been online in the last few years, you have probably heard of the recent decluttering trend. People are discarding dumpsters full of belongings and keeping only what is both meaningful and useful. This brings up an interesting question: what tax documents are worth saving? What you should save and what you should toss depends on the IRS statute of limitations.
IRS Statute of Limitations for Tax Documents
What counts as a tax document? In general, this includes returns as well as any supporting documentation, which can include W-2 forms, bills, mileage logs, checks, and other records. Anything you use to determine how much to pay on your annual taxes should be saved. However, these documents should not be saved indefinitely. In general, the maximum statute of limitations is three years. This mean that you only need to save these documents for three years from the date that you file your taxes.
Exceptions to the Rule
There are a few times when the statute of limitations set by the IRS does not apply. For instance, people who do not report all of their revenue and income can be prosecuted for up to six years after filing a return. If you are at risk of being accused of this crime, it is important to keep proof of income for this amount of time. Similarly, fraud prosecutions have absolutely no statute of limitations. You may want to find a system in which you can save paperwork indefinitely if you feel these charges may ever be brought against you.
People also can be prosecuted indefinitely if they never file a return at all. However, this will not apply to most people. While tax fraud id shockingly common, failing to file a return at all is not common. In addition, people who do not file a return generally have no documentation to save, making the paperwork for their defense at least a bit easier.
