So here is this time honored question – how long do I have to keep all my old income tax receipts?

What’s the answer? It may be a little more complicated than that.

The IRS statute of limitations (the time limit the IRS has to audit your taxes for any particular year) is three years from the date of filing. Your state may have different rules (for instance, California’s statute of limitations is four years from the date of filing.) Taking your state into account, and especially if you have filed an extension in the past (which can add up to six months onto the statute of limitations), so five years should be good, right? But the IRS can go back six years if you are subject to the 25% understatement of tax or don’t report more than $5,000 in foreign income, so now seven years is probably the safe answer. But there is more information you may need to keep longer than the seven year time frame.

If you own a house (residence, rental or investment property), you need to keep documentation of all the improvements you made to the property, since you may have to show the auditors your cost basis so an accurate gain or loss can be calculated (even if you have the $500,000 exclusion on a principle residence, any gain above that is taxable!)

If you have investments, it is a good idea to keep cost basis on everything you have not sold. Your broker probably has basis schedules on all your stocks you sell and will send it to you, but other assets you may have to keep track of.

Also, if your business has purchased furniture and equipment and depreciated them, it is important to keep cost information on them until they are fully depreciated. And if you are amortizing points over the life of your mortgage, you should keep documents to prove the original amount of the points until they are written off.

So after all this, it comes down to the final point: if, after all this discussion, you think that there is information that if you throw it away it will come back to bite you, you might as well keep it (at least for seven years).

For financial, accounting and tax musings,