As we move through tax season, some of my clients have been asking how long they should keep their tax records in case they get audited – and are some records more important to keep than others.
Since you never can be certain of tax issues, I tend to err on the side of caution and say, ‘indefinitely.’ But, while the ‘three-year rule’ applies in most cases (3 years from the date you filed the return), a better rule of thumb is likely 7 years. But I’d like to stress that most of my clients have sought me out due to significant tax problems; if the IRS determines someone has filed a fraudulent return, there is no statue of limitations, and they can audit as far back as they choose. And if you claim deductions for bad debts or security losses, you should keep your documentation for a minimum of 7 years. If you’ve under-reported your income by more than 25%, the IRS can look back 6 years. So you see, depending on the situation, there’s no easy answer, but in most cases, 7 years of records is a safe bet.
You need to keep more than just actual tax records, and that includes everything used to prepare your taxes. If you run a home business and claim a portion of home repairs, for example, you need to keep supporting receipts for as long as long as the records are required. One of the biggest mistakes people make is not keeping records that establish the basis of property and investments; those are used to determine taxable gain or loss when they sell. Here is a list of items to include:
• w-2 forms
• 1099 forms for any type of income
• w-4 forms for household employees
• gambling losses
• bank statements
• brokerage statements
• home improvement, closing and sales documents
• child care expenses
• alimony payments or receipts
• charitable contributions
• mortgage interest and property tax documents
So, I have to say, even with the above guidelines, keeping tax records and all of the support documents permanently is really your best option. Note that the IRS does allow records to be saved electronically (pdf), and many, many years’ worth of records on a cd or flash drive. This can help avoid that sea of paperwork and still retaining all records. if you are not sure about what to keep, and how long to keep it, it is always best to ask. I’m always here to answer your questions, so don’t hesitate to call 813-600-5889 or email me at larry@taxproblemsolver.com
