Many taxpayers are confused about how long they should keep tax records. The term "tax records" refers to your tax returns and the documents that support the information in the returns. These documents can include receipts, bank statements, 1099s, etc. If you are one of the unlucky few to be audited, these records will be vital to fending off the IRS.
Tax Returns
To protect yourself from a nasty audit, you should keep all of your tax returns indefinitely. The IRS has been known to lose or misplace tax returns. While conspiracy advocates argue that this is evidence of a nefarious scheme, the simple fact is that the IRS receives millions of returns over a three-month period and lost returns are inevitable. So how do you protect yourself? You keep copies of every single tax return.
A quick word on the IRS e-file program. If you file your returns electronically, make sure you get copies from the company that filed your return. All such entities are required by law to provide you with paper copies.
Records Supporting Tax Returns
You should keep supporting tax records for a period of six years from the date the returns were actually filed. In general the IRS only has three years to audit you from the filing date. For example, if you filed your 2000 tax return on April 15, 2001, the IRS would have to start an audit by April 15, 2004. Keep in mind that if you filed an extension, the IRS will have three years from the date you submitted the return. As is always case with taxes, there are exceptions to this general time period.
If your tax return looks like the great American novel, the running of the three-year audit period may not save you. Failure to report more than 25% of your gross income gives the IRS an additional three years to pursue you. Using the previous example, the IRS would have until April 15, 2007 to audit your 2000 tax return.
Property Records - Get A Filing Cabinet
You may need to get a filing cabinet if you hold property for an extended period of time. For example, assume that you purchased a home in 1980 for $100,000 and made $50,000 in improvements over the years. You need to keep the purchase records, mortgage statements and receipts that relate to the improvements. When you sell the home, you will need the records to determine the tax consequences of the sale, to wit, your basis (original cost plus improvements) and profit. If the IRS decides to take a closer look at the reported profit, you will need to provide your tax records to support your claims. Once you actually sell the property, it is recommended that you keep all of the tax records for an additional six years.
Divorce
Make sure you keep copies of all of your financial documents, tax returns and supporting documents if you get divorced. You should also keep copies of all divorce agreements and court orders that cover property and financial issues. When couples divorce, the tax and credit consequences can be nightmarish. If you don't keep records, you will have to ask your ex-spouse for them. Get the records now to avoid doubling your misery!
Hopefully, you will never need to show your tax records to the IRS. If you are one of the unlucky few that is audited, your tax records should keep your feet out of the fire.
Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for businesses by finding overlooked tax deductions and credits through a free tax return review.
non-toxic cleaning company Winnetka ..According to the IRS, taxpayers underpay their taxes by some... Read More
One can never underestimate the enthusiasm that politicians have for... Read More
If your identity is stolen, your finances can quickly become... Read More
Someone once remarked, "Next to being shot at and missed,... Read More
Background issues of access to recordsTo assess the records at... Read More
Employers often ask employees to designate the amount of tax... Read More
Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More
Choosing the right tax preparer for your business is a... Read More
Assume a buyer in Pakistan downloads software from the Internet... Read More
As a small business owner or self-employed person, one of... Read More
Are you in the middle of a disagreement with the... Read More
Marketing is a necessary expense in running practically any business... Read More
In the rush to get tax returns prepared and filed... Read More
Often people fall on hard times and stop paying on... Read More
Have you been thinking about incorporating your small business or... Read More
Does this scene sound familiar? It's April 7. You haven't... Read More
Why a Corporation Helps Save You TaxesThe Tax Rates (Notice... Read More
As tax time approaches, many home-based business owners begin completing... Read More
Anyone who is closely related to an accountant knows that... Read More
The IRS has obtained civil injunctions against more than 100... Read More
Haven't done your taxes yet? No problem. Now there is... Read More
If your like many, you don't always understand what people... Read More
Does your incorporated business pay alternative minimum tax ["AMT]? If... Read More
OverviewIn the Pre-Budget Report of December 2003 the Chancellor Gordon... Read More
1812The first attempt to impose an income tax on America... Read More
experienced cleaning professionals Glencoe ..At the present time a company incorporated in the Isle... Read More
Beware of advertisements that claim to settle tax debts for... Read More
The United States is a nation of entrepreneurs. There are... Read More
Most people look forward to getting their tax return, but... Read More
Each year, the IRS lists various scams taxpayers get caught... Read More
The U.S. Department of Agriculture estimates that it costs nearly... Read More
Once a year Canadian taxpayers are required, by law, to... Read More
"Settle for Pennies on the Dollar! IRS debts settled for... Read More
To tax or not to tax - this question could... Read More
Newlyweds and the recently divorced should make sure that names... Read More
Following is a reproduction of the IRS's rules and requirements... Read More
With the massive losses caused by Katrina, the economy of... Read More
Whether helping the kids with a down payment on their... Read More
If you are a Small Business Owner or Self-Employed Person,... Read More
So, you were pleasantly surprised to learn that you are... Read More
Emerging Legal issues of Tax compliance of e-business Self-assessment system... Read More
Donating your used car to charity is a win-win situation;... Read More
If you have employees, you are responsible for paying a... Read More
Anyone who is closely related to an accountant knows that... Read More
The end of tax filing extensions is quickly approaching. What... Read More
Recently, I stumbled across a concept that could change your... Read More
Does your incorporated business pay alternative minimum tax ["AMT]? If... Read More
In elementary school, kids come up with creative excuses why... Read More
If your like many, you don't always understand what people... Read More
On June 3, 2005, the IRS released guidance on charitable... Read More
Tax |