As we begin the new year, it is important to sort through your tax records to determine what needs to be retained to prepare your income tax returns.

In general, tax record-keeping requirements are very broad. As a taxpayer, you are required to keep accurate books and records that will be helpful in determining your tax liability. This would include records of income, gains and losses, deductions and all documents that could affect your tax liability.

You are expected to keep these records for as long as they might be relevant for any federal tax purpose. Generally, records that support items of income or deductions that appear on your tax return should be kept for at least the three periods of limitations that apply to that return:

» First is the general three-year limitations period. The three-year period begins on April 15 or the date that the return is filed, whichever date is later. For example, your 2006 return was due on April 15, 2007. The limitations period starts running on that day, even though the return may have actually been filed earlier. The limitations period will expire on April 15, 2010. Therefore, if none of the other limitations period rules apply, you can begin disposing of your 2006 records after that date. However, if you extended the filing of your 2006 return, and filed it on Aug. 1, 2007, the three-year limitations period will not expire until Aug. 1, 2010.

» Second is the six-year limitations period that applies when you omit 25 percent or more of your gross income from your return. This can occur when you forget to report the sale of a valuable asset.

» Finally, there is no limitation period for false or fraudulent returns, when there is a willful attempt to evade taxes or when no return is filed.

As a general rule, some records should be kept for longer periods. For example, you should consider keeping tax returns with the attached Form W-2's indefinitely.

These become useful when checking your annual Social Security statement against your W-2 forms. If you should discover a mistake, all that is required is to do is send a copy of the relevant W-2 form to the Social Security Administration, and they will correct the problem. Without the W-2 form, correcting the problem could be much more difficult.

Other records, like the purchase of an asset, must be kept until you sell the asset so that the gain or loss can be computed. The limitations period for these purchase documents begin when the sale is reported on your tax return.

You also should keep track of 401(k) contributions through retirement. Hawaii does not tax retirement benefits attributable to your employer's contributions. If you have a 401(k) plan where your employer makes matching contributions, the retirement benefit attributable to the matching contributions will not be taxed in Hawaii.

You should be particularly careful when you change jobs and roll over funds from one plan to another. The new administrator might not have sufficient information to calculate the total employer contributions for you. You will have to do this yourself, and it's much easier with detailed records.

When in doubt, always keep your records. For more information, refer to Internal Revenue Service Publication 552, Recordkeeping for Individuals.