|
In Home Business Tax Deduction Article:
Tax Records - What
You Should Keep And For How Long
by: Richard A. Chapo
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.
About The Author
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.
|
