How Long Do You Have to Keep Tax Records ?

The records that were basis for various claim in the tax return is required to be kept for at least the time upto which the IRS has power to initiate any kind of action under Internal Revenue Code.You should keep all receipts, canceled checks, and other evidence to prove amounts you claim as deductions, exclusions, or credits. Also note that there is no expiration date for audits on taxes not filed or taxes filed fraudulently. Therefore , if such is the case , one must preserve the records forever. You will need every single document if and when the IRS catches up with you. You will also most probably need a very good lawyer. In other words ,records should be retained for as long as they are important for any income tax law .

How many years can the IRS  audit your tax returns?

The time limit for IRS audit of your tax returns can be within three years after the date a return is filed or within three years after the due date of the return, if later). However, the time limit of three-year period during which the IRS may audit your returns can be extended  to six years if  IRS detects that you concealed income  greater than 25 percent of the amount reported on your return.

No Time Limit IRS Audit in Certain Situation

 The IRS can audit returns without any time limitation in any of the following situations:

  1.  A false or fraudulent return is filed with the intent to evade tax;
  2. A taxpayer engages in a willful attempt in any manner to defeat or evade tax; or
  3. A taxpayer fails to file a tax return. IRC 6501(c).

What Does the IRS Say About Keeping Tax Records?

The following is the advise from IRS on its website regarding the period for which one should keep the tax records

  1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
  2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
  3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  5. Keep records indefinitely if you do not file a return.
  6. Keep records indefinitely if you file a fraudulent return.
  7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

The following questions should be applied to each record as you decide whether to keep a document or throw it away.

How should you store those tax records?

It is advisable , that you keep one paper file and one digital version. Print out a copy of each year’s tax returns and put it wherever you keep your other vital hard copy documents. Then save the PDF version and put it wherever you keep your backed up digital files.

What Tax Records to Keep?

Here are some examples to get you started:

Income Documents

  • W-2 Forms
  • Invoices Paid In
  • 1099 Forms
  • Investment Income Statements
  • Significant Cashed Checks
  • Sales Receipts
  • Contracts For Work or Sale

Expense Documents

  •  Spending Receipts
  • Charitable Donation Receipts/Confirmation
  • Student Loan Statements
  • Investment Loss or Income Statements
  • Gambling Loss Receipts
  • Checks Cashed Against Your Account
  • Invoices Paid Out

Apart from the aforesaid documents , it is better to  keep all records relating to your home if you have taken a mortgage interest deduction.

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