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 What to
Keep and How Long
Tax
records should be kept on a year-round basis, not hastily assembled just
for your annual tax appointment. Without tax records, you can lose
valuable deductions by forgetting them on your tax return, or you may
have unsubstantiated items disallowed if you are audited.
Generally,
returns can be audited for up to three years after filing. However, the
IRS may audit for up to six years if there is substantial unreported
income. The three and six year limits start with the filing of a tax
return; if no return is filed, the time limit never starts to run.
Which
records are important?
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Records of income received |
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Home
improvements, sales, and refinances (for homes with profit
potential of $250,000 or more) |
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Expense items, especially work-related |
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Investment purchases and sales information |
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The
documents for inherited property |
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Medical expenses |
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Charitable contributions (records vary with value of gift) |
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Interest and taxes paid |
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Records on nondeductible IRA contributions
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how long you should keep records is partly a matter of judgment and a
combination of state and federal statutes of limitations. Federal tax
returns can be audited for up to three years after filing (six years if
underreported income is involved). It is a good idea to keep most
records for six years after the return filing date.
There
are some records worth keeping permanently, partly due to long-term
needs and partly because they take up very little room. Consider
permanently retaining a copy of each year's tax return. Contracts, real
estate buy/sell records, and records of property improvements should be
retained for seven years after the property is sold.
If
you are in business, your record requirements are more extensive. Please
call us; we will be happy to assist you with a system of record
retention.
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