Congratulations! Most of you have completed your 2017 income tax returns and quite frankly finishing that task is a major accomplishment.  With the new tax laws taking effect this year, the process may be even more complicated next year.

Personally, I have jumped back into the tax preparation arena and have spent the last eight weeks working for two different tax firms. I prepared over 150 individual income tax returns and even though there were many long days, it was great to work from home.  Now I am back on my regular schedule and glad to be blogging again about the important elements of The Family Legacy Drawer.

One of the questions I get asked quite frequently is how many years must I keep my individual tax returns and records. The answer to this question is not necessarily simple or straightforward.   I have listed the general rule below and the exceptions to the rule.

Generally, you should keep your individual income tax returns and supporting records for FOUR years (IRS statute of limitations is three years but California is four years).   However, there are situations in which you should keep them longer than four years.

1. If you have under-reported your income by 25 percent for more, the IRS can go back six years to investigate and file a claim for back taxes.
2. Tax returns where you claim a bad debt deduction or a loss from a worthless security must be retained for seven years.
3. If you buy or sell property you should keep records until the statute of limitations expires (typically four years) after the year in which you dispose of the property.
4. If you do not file a tax return, keep tax records indefinitely.

These tax returns and records are also a very important part of The Family Legacy Drawer.  When a loved one passes away, there will be a final individual income tax return to be filed for the income and expenses that occurred in the year while your loved one was still alive.  Having previously filed tax returns and records easily assessible will make the task somewhat stress free.

Having the four previous years of tax returns and records as part of the family legacy drawer acts as an insurance policy in case of an audit. Questions from the government authorities regarding previously filed tax returns can be easily addressed and resolved.  So, as you are filing away your documentation for your 2017 tax returns,  be sure to include the location of these documents in your family legacy drawer.

I hope these guidelines help you pare down the excess paper you may be accumulating in your files and give you the necessary information your executor or trustee will need when wrapping up your estate.