How Long Should a Taxpayer Keep Records?

Piles and piles of tax returns, papers, bank statements, and canceled checks are accumulating in your attic. Just how long do you have to keep all of this?

Net Operating Losses for Farmers

If you are a farmer who had a loss from the operation of your business, you might be eligible for favorable tax treatment of that loss. Generally, a taxpayer is entitled to carry back a net operating loss to the two tax years before the loss year and to deduct it from the income of those years. In that way, the taxpayer may get a refund of all or part of the income taxes paid in those prior years. If the net operating loss is not used up in the carryback period, the taxpayer is permitted to carry it forward for the next 20 years.

IRA Withdrawals Used for Higher Education Costs

Congress has passed a law permitting taxpayers to make withdrawals from their individual retirement accounts (IRA) to pay qualified higher education expenses for themselves, spouses, children, or grandchildren to a qualified educational institution. A taxpayer may also make a withdrawal from a Roth IRA to pay qualified educational expenses.

Stock Redemptions

A stock redemption is the reacquisition of stock by a corporation in exchange for property, which includes money, securities, and indebtedness to the corporation. After a redemption, the stock may be canceled, retired, or held by the corporation as treasury stock. If the corporation redeems its stock in a manner that makes the distribution "equivalent" to a dividend distribution, then the amount received by the stockholder is a taxable dividend to the extent that it is paid out of earnings and profits.