Let’s assume that you dutifully filed your 2013 taxes in recent months. You’ve got to hold on to your supporting paperwork for three years, since that is how long the federal government has if they decide to audit you. (If that number surprises you, see my earlier post entitled “How Long Should I Keep My Personal Tax Records?”) Most states — including my state, New York — also only have three years to audit you. (You can check your state here.)
It’s annoying to have to hold on to all that paperwork — but I may be able to reduce how much you need to save.
Most of us collect our receipts for Medical and Dental Expenses throughout the year in the hope that we can get a tax deduction from them. But the bar for deducting those expenses is pretty high. They need to be higher than 10% of your Adjusted Gross Income (AGI). If they aren’t, you get no deduction. Even if they are, you can still only deduct the difference between the total medical and dental expenses and 10% of your AGI.
For example, if your AGI was $75,000, and your medical and dental expenses were $8,000, then you only get a $500 deduction. (Ten percent of your AGI is $7,500, and the difference between $7,500 and $8,000 is $500). Note that if you or your spouse were born before 1/2/49, then the applicable percent is 7.5% instead of 10%.
Take a look at Schedule A of your federal tax return. Did you meet the criteria, or do you see a big fat zero on line 4? If you see a zero, it means you did not get the deduction, in which case you don’t need to save your medical and dental receipts. Go ahead and shred them!
(As always, it’s best to check with your tax professional before shredding, as you may have specific circumstances that would require you to keep the paperwork.)