According to the IRS, there are around $1.3 billion in unclaimed refunds from the 2005 tax year. These unclaimed funds are for individuals who did not file a tax return in 2005. Due to the three-year look back, individuals have until April 15th, 2009 to claim these refunds or they may be gone for good.

IRS Commissioner Doug Shulman says, “especially in these tough economic times, people should not lose out on money that is rightfully theirs. People should check their records, especially if they had taxes withheld from their paychecks but were not required to file a tax return.  They may be leaving money on the table, including valuable tax credits that can mean even more money in their pockets.”

The IRS estimates that half of those that could claim these refunds for the 2005 tax year would receive more that $581. Many of the individuals in this category had too little income to file a return but had taxes withheld from their wages or paid quarterly estimated taxes. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.

Many low-income workers may not have claimed the Earned Income Tax Credit (EITC) or even knew about it. Unmarried individuals that earned less than $35,263 in 2005 and had more than one qualifying child are eligible for the credit. Keep in mind that you must have earned income and not be able to be claimed by someone else in order to qualify for the credit. If you are single with one child the threshold is $31,030. If you are single with no children and at least 25 years old, you can qualify for the EITC with less than $11,750 in income. The rule on being claimed as a dependent also applies. These numbers are slightly increased for individuals filing married filing jointly.

Double check your 2005 taxes and make sure you filed if you were due a refund. If you didn’t file, get those returns in by April 15th of this year to get what you are owed!

One of the most frequently asked tax question is how long you must keep tax documents. You want to know the answer? It depends. Isn’t that the answer to everything these days? Anyway, here are some general rules for keeping your records straight with the IRS.

Three Years Might Be Enough

Most tax documents can be shred after three years. Why? Three years is the statute of limitations for tax audits at the IRS. That means that come April 15th, 2009, the IRS can no longer audit you for your 2005 tax return. Why don’t you invite your friends over that day and have a shredding party? You can even have them bring over their papers! However, don’t shred them if you filed for an extension for your 2005 return. You must hold onto those papers until three years after the due date of the extension.

Things to Keep Beyond Three Years

Wait! Step away from the shredder! There are some things that you should keep beyond three years. First, you should keep any records you have on appreciable assets that you currently own. That would include stocks, bonds, antiques, real estate, land, jewelry, etc. Chances are, you will sell these one day and having these documents will be crucial in making sure you are paying the right amount of tax. For example, if you do improvements to your home, it adds to the basis of it. This will end up helping you in the end and may lower your tax on the asset. Make sure you keep all of the documents that shows the costs of the improvements. The IRS is all about showing the appropriate documentation backing your calculations.

Another thing to remember is that if you “forget” to report income, the IRS can go back up to six years. Also, if you plan committing tax fraud, you might as well get used to metal bars because the IRS will find you and they can do that whenever!

Where to Put Your Documents

Now that you know what to keep, where should you keep it? The best place to keep your files is a bank safe deposit box (which is tax deductible if you itemize by the way). If there is no way you can have a safe deposit box, invest in a fireproof safe. Make sure the fireproof safe can take a few hours of heat that way you know it will survive almost anything.

I know it’s a pain to keep all of these records, but believe me, it’s much better than having to pay penalties and interest on taxes that you have to pay due to not having proper records.