Safe storage of tax information is vital when running a small business or a busy household. To avoid confusion, you should always keep a copy of important tax receipts, especially for expensive purchases. Nevertheless, after a number of years, many of these receipts may be thrown away, since they are no longer useful for tax planning purposes.
Statue of Limitations
In the United States, the Internal Revenue Service reserves the right to investigate tax returns for up to three years after they are filed. Stephen Fishman, author of "Working for Yourself" recommends that "you should keep your records for as long as the IRS has to audit you after you file your returns for the year." Such a period of time usually spans three to six years, but could be longer depending on the reason behind the audit in question. As years pass, many receipts be thrown away, but copies tax return information should always be kept on file.
Types of Income
Depending on whether tax-related expenses are connected to business activity or personal purchases, an individual may wish to file specific receipts for an extended period of time. To simplify the tax planning process, business receipts and personal receipts should be filed separately, preferably in different folders.
Certain receipts are not worth keeping, while one can hardly afford to lose others. Business-related receipts that total less than $75 may be discarded, but such expenses should be recorded in a ledger before the receipts are thrown in the trash. Other receipts such as travel expenses, employment taxes or car expenses should always be filed away in case they are needed later to settle accounting records.
Investments that are made for long-term assets, such as computer equipment or complex home improvement projects, should be thoroughly documented. Tax receipts from such pricey investments may later be relevant for insurance purposes, as well as when trying to resell such assets in the future. Consequently, these receipts should not only be kept for several years, but also for three years after the depreciable life of the asset ends.