If you’re in the mood for some spring cleaning, you might be wondering if you can safely get rid of the boxes of tax documents that are stacked up in your garage or basement.
To help answer that question, here are a few guidelines on what you should keep and what you can toss:
The Internal Revenue Service expects you to maintain your tax returns and the supporting documentation for three years after you file your return.
That might sound simple enough, but the IRS also advises taxpayers that there are certain exceptions to that simple rule.
The exceptions include:
* If a claim for a credit or a refund is filed after the filing of a tax return, individuals must keep the tax records for three years from the later filing date or two years from the date the tax was paid, whichever is later.
* If you file a claim for a loss due to worthless securities or a bad debt, you need to maintain your records for seven years.
* If you do not file a return, the relevant records must be kept indefinitely.
* Curiously, the IRS says that taxpayers who file a fraudulent return should maintain their tax records indefinitely.
You are expected to keep records for six years if you don’t share reportable income on your return and it represents more than 25% of your gross income.
The IRS doesn’t require this, but if you’re a homeowner, you should hold onto your home improvement receipts.
The receipts are important because they could save you from eventually paying capital gains tax. If you sell your house for a capital gain of more than $250,000 as a single individual and $500,000 as a married couple, you could face a tax of nearly 24% on any profit above the applicable exclusion limit.
Home improvement receipts can help reduce the capital gains tax owed because the money on improvements is deducted from your sale profits when you calculate the taxable gain. Unfortunately, money you spend on repairs to your home won’t help you reduce the taxable gain. So for instance, refinishing hardwood floors won’t count, but replacing your carpet with hardwood floors will.
Here are other documents that you should keep: