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How Long?

From IRS Publication 583, here’s a clear and handy list of how long you must keep records.

If you... Then the period is...
1. Owe additional tax and situations (2), (3), and (4), below, do not apply to you 3 years
2. Do not report income that you should report and it is more than 25% of the gross income shown on the return 6 years
3. File a fraudulent return Not limited
4. Do not file a return Not limited
5. File a claim for credit or refund after you filed your return Later of 3 years or 2 years after tax was paid
6. File a claim for a loss from worthless securities or a bad debt deduction 7 years

The easy way

Now you don’t want to be bothered with re-sorting your saved records every year -- you have other things to do. So here’s a way to make it easier...

As you can see, seven years is the max time length listed for any category of receipt. (Except for tax evasion -- so if you are planning to be dishonest, you’d better rent a giant storage locker since you’ll need to save all records forever!)

So why not just forget about the three-year and six-year categories -- just group them with the seven-year saves. Now after the end of each year, as soon as you figure you have all the bank statements, receipts and what-not from the prior year, pull out last year’s accounting receipts from your file drawers. Or better yet, have your recordkeeper do it for you.

Leave the material you need to keep at hand, like information about your phone plans, credit card agreements, contracts, etc. Also keep software and equipment registrations and warranties, but attach a copy of your purchase receipt. We keep annual receipts in separate folders from evergreen info so we don’t have to sift through each file folder at year end to confirm what gets pulled and what stays.

Box up what you need to save compactly

On the outside of this package, write “CAN BE TOSSED 01/01/yyyy!” Here you put the first of the year seven years hence. For example, if you are saving records from 2004, you write in 01/01/2011, which is 7 full years after the end of 2004.

Now file that away in your storeroom or attic -- wherever you keep what you don’t need to get at often. As you put that away, you look for the package from seven years ago -- the one that has this year’s date on it. You shred it! Or burn it! It will feel cathartic to have that seven-year-old baggage officially out of your life!

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