As we begin the New Year, consider what tax records you should keep when preparing your income tax returns.

Tax record-keeping requirements are very broad. Essentially, as a taxpayer you are required to keep accurate, permanent books and records that may be helpful in determining your tax liability. This includes records of income, gains and losses, expenses and anything else that could affect your tax liability.

You must keep your records for as long as they may be, or may become, material for any federal tax purpose. Generally, records that support an item of income or a deduction that appears on your tax return should be kept for at least the period of limitations that applies to that return.

There are three limitations periods that apply to income tax returns.

» First is the general three-year limitations period. The three years start with the later of April 15 or the date a return is filed. For example, for federal income tax purposes, your 2005 return was due April 15, 2006. The limitations period starts running on that day, even if the return is actually filed earlier. The limitations period expires April 15, 2009. So if one of the other limitations period rules does not apply, you can start weeding out your 2005 records after that date. If, however, you extended the filing of your 2005 return, and filed in on August 1, 2006, the three-year limitations period will not expire until August 1, 2009.

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

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

  Some records should be kept for longer periods. For example, you should consider keeping tax returns with the attached Form W-2's forever.

You should always check your annual Social Security statement against your Form W-2's. If there is a mistake, all you have to do is send the Social Security Administration a copy of the relevant Form W-2, and they will correct the problem. If you don't have the Form W-2, correcting the problem will be greatly more difficult.

Some records, like the purchase of an asset, have to be kept until you sell the asset so the gain or loss can be computed. The limitations period for those purchase documents starts when the sale is reported on your tax return.

You should keep track of 401(k) contributions through retirement. In Hawaii, the state 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.

Keeping track of this is not as burdensome as it might seem as many 401(k) plan administrators will display this information in your periodic statements. Where you want to be especially careful is 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 contribution for you. You will have to do that yourself, and it's a lot easier with detailed records.

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