Tax Records What You Should Keep And For How Long

Tax Records - What you​ Should Keep And For How Long
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,​ 2018 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.
Tax Records What You Should Keep And For How Long Tax Records What You Should Keep And For How Long Reviewed by Henda Yesti on July 02, 2018 Rating: 5

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