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When to Shred Your Income Tax Return

Posted on 01 November 2012 by Total Secure Shredding

How Long Should I Keep My Income Tax Records?

by David W. Taklender, CPA

Every so often, a client will ask me how long they should retain their tax documents.

I usually respond by stating “Probably not as long as you think.”

I smile when I say this because I would usually think of the client who once told me she still had her and her family’s tax returns from twenty years earlier and wanted to know if it was finally safe to throw them away!

The rules on document retention vary depending on whether you are talking about taxes  (Federal, State, Income, Employment), insurance policies, bankruptcies, creditors, etc.

For purposes of this column and based on my background, I will give you guidelines concerning your income tax documents.

According to the Internal Revenue Service:

The length of time you should keep a document depends on the action, expense, or event the document records. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return run out.

The period (or statute) of limitations is a period of time that governs two events:

  1. the taxpayer’s ability to file/amend their tax return to claim a credit/refund, and
  2. a window of time where you are eligible for an examination or audit and the possibility of being assessed additional tax.

So, the first part of the answer would be that you should hold your tax documents until the statute of limitations for that tax year expires.

Sounds simple, now we just need to know how long that is, right? What is the number?

Nothing can ever be that easy when dealing with congress, so please….walk with me just a bit further.

The second part of our answer, in order to determine the statute of limitations, is that all-time favorite response, “it depends.”

It really does depend because there exists a “grey area” here in the periods depending on three circumstances,

  1. the tax agency you are filing with;
  2. what “type” of taxes you are filing; and
  3. what the situation/event is.

Answering these three circumstances one by one…

FIRST: The IRS oftentimes will have a different statute of limitations than some state taxing agencies. For example, California has a four-year statute compared to the IRS, which at its lowest level has a three-year statute of limitations. So we have to determine if we are talking about State tax returns or Federal (IRS) tax returns.

SECOND: In this article we are talking income tax returns. But for other tax returns, such as payroll taxes, the retention period may vary. For example, the IRS period of limitations for payroll taxes is different from the one for income taxes (four years vs. three years, respectively).

THIRD: Different events can extend the statute for additional years, and a situation like fraud can extend it indefinitely – meaning the return may be examined, and additional taxes may be imposed at any time in the future.

The following represents a list from the Internal Revenue Service of the various periods of limitations that pertaining to your income tax returns, and unless otherwise stated, the years refer to the period after the return was filed:

  1. If you file a timely filed return, or one where you owe additional tax and situations (2), (3) and (4) below, do not apply to you; then keep records for 3 years.
  2. If you do not report income that you should report, and it is more than 25% of the gross income shown on your return; then keep records for 6 years.
  3. If you file a fraudulent return; then keep records indefinitely.
  4. If you do not file a return at all; then keep records indefinitely.
  5. If you file a claim for credit or refund after you file your return; then keep records for 3 years from the date you filed your original returns or 2 years from the date you paid the tax, whichever is later.
  6. If you file a claim for a loss from worthless securities (Section 1244 stock) or a bad debt deduction; then keep records for 7 years.
  7. Regarding payroll taxes, you should keep all employment tax records for at least 4 years after the date that the tax become due or is paid, whichever is later.

NOTE: Regarding conformity issues at the state level, the California Franchise Tax Board makes clear on their website that an extended statute period, beyond the standard four years, may apply if your federal return is under audit.

Finally, when your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. As briefly mentioned earlier, you insurance company or creditors may require you to keep them longer than the IRS does.

If you have any questions concerning document retention or are interested in a consultation for your business or personal tax situation, please feel free to email me at david@dtakcpa.com or visit my website at www.dtakcpa.com.

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Hard Drive Destroyed – FAIL!

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Hard Drive Destroyed – FAIL!

Posted on 20 July 2011 by Total Secure Shredding

Hard Drive Destruction

Fabrice Touree is the now the infamous Goldman Sachs mortgage trader who has suddenly become one of the sole scapegoats for the 2008 financial disaster.

So how does a midlevel 28 year old thrust himself into the limelight as a target for SEC investigators?

Although there doesn’t seem to be any admission by the SEC or Goldman Sachs that Touree was the ringleader who masterminded the creation of billions of dollars of dubious mortgage backed securities, he did do something to put himself into the hotseat.

It appears Mr. Touree simply threw out an old laptop that was later found “discarded in a a garbage area in a downtown apartment building” as indicted in a recent New York Times article.

The laptop was still receiving emails when the eventual user of this “recycled” laptop recognized the name in the emails, Touree, was also a name finding it’s way into news headlines.

An article by the Huffington Post points out that the e-mails received between Touree and his lawyer “discussed how to handle accusations that he and his employer, Goldman Sachs, had played a key role in engineering a near-financial apocalypse.”

This indeed has played out to be quite unfortunate for Mr. Touree since his case is apparently the only one being prosecuted by the SEC.

I would guess that Touree never thought for a second about the open email client on this casually discarded laptop.

Unfortunately, we often forget how much “stuff” is left sitting on those old computers. Most folks are replacing their computer every 2 to 3 years. And let’s be honest, 2 years is not that long ago!

You’re very likely to be using the same online email account, with the same bank with the same bank account number, and still living at the same address.

And, as we see in the case of Mr. Touree, we’re also not very likely to safeguard the information on our computers with passwords.

The above mentioned Huffington Post article goes into some of the current debate over the best way to dispose of the data on our hard drives from using software tools that “wipe” a hard drive to “the most surefire way to discard data” by actual physical destruction.

If you decide to read farther down the article to the comment section, you see the debate rage on about whether reformatting your disk drives is enough, to dropping your computer in salt water, to taking a hammer and giving your hard drive a few good whacks.

Personally, what I recommend is physical destruction. And to take it a step further, shredding so the hard drive is in multiple pieces.

Is this overkill?

Maybe. Although I still get questions as to whether the pieces are small enough.

(I won’t even get into the conversation I’ve had about the NSA and electron microscopes theoretically being able to read individual 0′s and 1′s off hard drive fragments!)

Anyway, when it comes to the secure destruction of hard drives, including my personal hard drives that need disposal, I feel 100% confident when all I have left is hard drive rubble.

Check out the video I took of the very first hard drive I shredded.

The cost of ensuring that the information held on your hard drive will never ever be seen by anyone else again is only $10 per hard drive when you bring the hard drive down to our secure shredding facility. You can stand by our view window while we run the hard drive through the shredder and then take a look at the pieces when we’re all done! (For an additional $10, we will remove the hard drive from your laptop or desktop computer and recycle the computer for you.)

Our secure drop-off shredding facility is located at:

3584 Hancock St.
San Diego, CA 92110

Hours of Drop-Off:

Mon through Fri: 8am to 5pm
Sat: 10am to 1pm

You don’t need to make an appointment. Just drop by whenever you’re ready.

If you have any further questions, please feel free to give me a call: (619) 295-5474

Until Next Time… Keep Totally Secure,

Your friend,

Mike
Head Shredding Guy

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