Tax season is over and the inevitable question is…what do I do with all the paper I have been collecting the past three months? The best answer is, keep a file with just tax information. The IRS is only allowed to review your return for three years after it was filed, assuming they are not looking because of fraud or because you grossly understated your income. In those cases, statute of limitations can last significantly longer. However, for most “Average Joe’s” or Jane’s, the three year benchmark is the sweet spot. However, it’s probably best practice to keep returns for 4-5 years just as a precautionary measure. Each year when you put your new return in the file, destroy (shred) the return and related documents from 4-5 years back. Also, you can consider digitizing your returns and related documents on a thumb drive with other important documents. If you have complex returns and issues related to returns from specific years, consider keeping them at least 6 years.
Remember that your CPA is generally required to keep certain return information for you longer than you are required to keep it personally, under professional standards set by the state. Mandatory archiving varies state to state, but in California it’s seven years. Thus, even if you throw your return away from 4 years ago, your CPA likely has a copy (but don’t assume they do).
dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.