Ep 47: To Toss or To Keep: Spring Cleaning Your Tax & Financial Records!
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How long do you keep your tax records?
A shortie that packs a punch. We discuss how long you should retain your tax and other financial records.
We explore the statute of limitations for tax records, the importance of supporting documents, and special considerations for non-residents and property sales.
Some takeaways
Keep copies of all your tax records for as long as necessary.
The statute of limitations for tax records is three years for refunds.
If you never filed a tax return, keep records indefinitely.
Non-residents should hold onto property sale records until the issue is resolved.
Employment records should be kept until a Social Security application is submitted.
And a whole lot more.
We emphasize the importance of maintaining accurate records to ensure compliance with tax regulations and protect against potential issues with the IRS.
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Jane Mepham, CFP® (00:01)
Okay, we are back with one of our favorite formats, a Shortie, in which in less than 10 minutes, we take a term used in the cross-border space and tell you what it is, or we just answer a quick question for you. So we just completed tax filing. Obviously, if you had an extension, that's a whole complete different story. And so in today's Shortie we want to answer the question for you.
How long should you keep your tax records? Manasa, I'm just going to let you have this for the next couple of minutes because this is your space. How long should we keep our tax records, Manasa?
Manasa Nadig, EA (00:42)
Yeah, you would think that that would be a simple answer. So let's start with the simplest one then. So you keep copies of all your tax records for as long as you think it's necessary. The statute of limitations on your tax records, if you have a refund available, is three years. And if not, then, you know, it's
basically open and I'll explain that. you should be keeping your tax records themselves for as long as it's necessary, but the supporting paperwork behind a tax return, which has been done and dusted, is three years from the due date of filing the returns. Now, if you did not file a tax return at all, for whatever reason, then
you should still be holding on to those work papers. But of course, the papers that were sent to the IRS by various agencies, they are available on the IRS's website. You could create an account and you could go and download it, but they are not available 10 years after the year in which you're looking forthem. So...
Jane Mepham, CFP® (02:05)
Okay, wait,
hold on, sorry. You said supporting documents. Can you give an example of a supporting document? Okay.
Manasa Nadig, EA (02:13)
of course, sorry about that.
Yes. So a supporting document would be something like a W-2, which shows your income, or a 1099INT, which shows your interest earned, you know, so on, 1099DIV for dividends and so on. So those would be some of the supporting documents. Other supporting documents that maybe if you had a business,
Jane Mepham, CFP® (02:36)
Okay.
Manasa Nadig, EA (02:39)
would be a profit and loss account and all the receipts for the expenses and so on. So, yeah, so going back to that, you would keep those records indefinitely if you never filed a tax return. And if you knowingly filed a fraudulent tax return, which you should not be doing, but if you did, then you do need to keep those supporting papers indefinitely.
Jane Mepham, CFP® (02:45)
Okay.
Manasa Nadig, EA (03:07)
And also very important, especially for our listeners is if you are a US or you were a US citizen or a green card holder who surrendered your citizenship or your green card, then I would suggest to keep your records indefinitely. So that's about the tax records. And there's one other thing there that I would like to add is for some reason you later on discovered that
you did report your income, but what you had reported was inconsistent by more than 25 % with what you actually earned, then keep those records for six years is what is recommended. And so that's basically all of the records that cover your tax return.
Jane Mepham, CFP® (04:01)
Okay. And so I guess if you amend your taxes, the same thing applies.
Manasa Nadig, EA (04:11)
Yes, so if you went, kind of, yes. So if you, like again, if you needed to amend your return and you knew there was a refund that you could expect from that year for which you're amending, however, if it's been more than three years since that year for which you're filing, then the standard of limitations is closed.
Jane Mepham, CFP® (04:12)
Okay.
Manasa Nadig, EA (04:38)
So you cannot get a refund for that year, if it's been more than three years though. So if you're amending your return to add more income and pay more taxes, then really there's no statute of limitations on that at all.
Jane Mepham, CFP® (04:59)
That's horrible!
Manasa Nadig, EA (05:02)
I know it is what it is. Yeah, we are just the messengers. Yeah.
Jane Mepham, CFP® (05:03)
Okay, yeah, I guess it's the tax rules. Yeah, it's a tax
rules. Okay, anything else to, we got the years, anything else to how long you want to keep your records? let's say like, if you, I know we were talking tax records, but it just occurred to me, let's say you sold a property. How long do you want to keep those?
Manasa Nadig, EA (05:16)
Yeah.
Yeah, I tend to be of the mindset that if I'm going to put things online, I'm going to pick a good cloud place or a USB drive if I don't trust a cloud storage, but I'm going to hold on to those sales records for at least six or seven years, if not more.
And if I am a non-resident of the US and I have sold property, a real estate property in the US, then I am going to hold on to those property records and other records until my case is resolved. So I think that we can kind of go into more detail on a different episode about this, but there are FIRPTA rules where
Jane Mepham, CFP® (06:19)
Yeah, yeah.
Manasa Nadig, EA (06:23)
You know, the taxes are withheld at source when a non-resident of the US sells real estate in the US. And what we know right now is the Internal Revenue Service takes a long time to review and refund those taxes withheld. So you may end up holding on to those records for a long time. So at least do that till your case is resolved and you do actually get that refund. Yes.
Jane Mepham, CFP® (06:46)
Okay, okay.
Okay, okay, no, that sounds great. three years indefinitely until the case is resolved is almost what I'm hearing. But of course, we know there's always more. Okay, anything else you want to add to that or should we bring it to a close?
Manasa Nadig, EA (07:01)
Yeah.
One quick thing that I would like to add is if you, again, are a non-resident and you were working in the US and you have enough social security credits, then I would suggest that you hold on to those employment records. And do create an account on the social security website and make sure that those numbers line up, but please do hold on to those employment records.
at least until the time that you have applied for social security from wherever you're living and you know that the correct number of credits are on the social security side as well and you're getting what you should be paid. Yeah.
Jane Mepham, CFP® (07:53)
Okay, that sounds
great. I love that. I know we just started with how long and you've actually gone into some more details of things that we still need to know about how long to keep those records. And with that, I think we bring it to a close. How does that sound?
Manasa Nadig, EA (08:09)
Absolutely. Yeah. And dear friends, you know, really quickly before we close other records, like, you know, insurance, mortgage, creditors, debtors, you know, all of that. Make sure that you know what the information is on that and how long you should hold on to it. We covered very briefly the Internal Revenue Service and Social Security, et cetera. So, yeah. Thanks for listening. Bye
Jane Mepham, CFP® (08:15)
Okay.
Okay, bye!
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.