September 28, 2017
Are you doing a little “fall cleaning” in your office? Nothing feels better than getting organized as year-end approaches. You may be tempted to toss out old tax records to make way for new files that will surely take their place, but you might want to think twice before you get out the paper shredder. Keeping your tax records is important if you are ever audited by the IRS, but there is a statute of limitations on how far back the IRS can go into your records.
In general, the IRS has three years to decide if it will perform a tax audit on your previous returns. With that in mind, you should keep your yearly tax returns for at least that length of time. Additionally, if you need to file a claim for credit on your return, you have three years from when the tax was paid or filed (whichever is later) to make that claim.
The three-year rule applies only to standard filings. If all of your earnings are not included on a 1040 form, then the window for an IRS review becomes a bit longer. The tax law says that if your income is under-report by more than 25 percent, the IRS then has six years to determine if an audit is required.
If you need to write off a loss from a stock investment, you must hold on to those records for at least seven years. The IRS can question a bad investment or deductions for a bad debt for up to seven years.
There might be some tax records that you will want to keep forever. If the IRS suspects that fraudulent information was entered on a return, it can come back with an audit at any time. With that in mind there are several financial records you may want to keep indefinitely. These might include documents for your home, your annual income and investment details.
Are you wondering if you can toss some of your records? Contact the team at Tax & Business Consultants with your questions. We can help you determine what to keep. In addition, we can provide insight on the best way to store this valuable information.
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