Friday, May 20, 2022

How Long Should We Keep Tax Records

Don't Miss

The Pros And Cons Of Storing Your Tax Records Digitally

How long should I keep my tax records?

Keeping tax records used to be more of a headache than it can be today, says Valrie Chambers, CPA and an associate professor of taxation and accounting at Stetson University in DeLand, Florida. This is in part because many people now have decluttered their offices and store their documents digitally. Many institutions also now issue digital copies of your tax forms, further reducing your tax paper trail.

In addition to reducing paper, storing your tax records and receipts online or in the cloud can be convenientbut make sure your online storage provider encrypts your data so that a cybercriminal cant easily steal your Social Security number or other data that can easily identify you. You can also protect your files and folders by adding a password.

When it is feasible, scan documents, store and back them up, Chambers says. Dispose of the paper copy at will, as long as its not an original deed, title, valuation or original investment paperwork. Keep those documents secure.

The IRS also keeps a record of your tax returns from previous years. You can request a transcript online, by phone or by mail .

If you use a CPA, dont rely on your accountant to keep records for you. Taxpayers should also maintain copies of tax returns and related documents themselves, Curtis says.

Keeping your own records prevents any potential problems if your CPA sells their business, retires, loses their records in a fire or flood, or dies.

How To Request The Permission To Destroy Your Records Before The End Of Their Retention Period

If you want to destroy your books of account and records earlier than the retention period specified in How long to keep your records, you first must get written permission from the CRA.

To get this permission, you or your authorized representatives can do either of the following:

If you destroy paper or electronic records without the CRA’s permission, you may be prosecuted.

The CRA’s permission only applies to records you have to keep under legislation it administers. The CRA is not authorized to approve the destruction of records you have to keep under other federal, provincial, territorial, or municipal laws.

How To Organize Your Tax Records

As youre working on your taxes, its crucial to remember that you may need to access them again in the event of an audit by the IRS. With that in mind, a shoebox with loads of papers or files scattered throughout your hard drive is not a good move.

Instead, start a filing system that organizes all your records by year and by category, such as bank statements, income forms and receipts. Throughout the year, make sure youre maintaining that system so that everything makes sense when you file and if the IRS requests something from the past, youll be able to track it down quickly.

If youre still dealing with a heavy amount of paper, there are plenty of apps to digitize and simplify your life, such as Expensify or CamScanner.

Recommended Reading: How Can I Make Payments For My Taxes

What Should I Do With My Records For Nontax Purposes

The IRS states that when tax records are no longer required for specific tax purposes, do not dispose of them until there is a certainty they won’t be needed for other reasons. Many times, other bodies will require tax documents for their own purposes. Insurance companies or often ask you to keep files longer than the IRS requires. When in doubt, play it safe and keep the records.

How To Store Documents

How Long to Keep Tax Records and Other Statements ...

You can keep your tax documents in a fireproof safe or a banks safe deposit box. But to conserve space, consider scanning all of your tax-related documents and saving them to an external hard drive or on a cloud service. As long as you can reproduce the documents and they are legible, the IRS accepts electronic copies.

Recommended Reading: Do I Need To Report Roth Ira Contributions On My Tax Return

Guard Your Financial Accounts

Use complex passwords to keep your account information safe. Make sure your username and password combination is different from the ones you use for personal email, online merchants and social media accounts. Protecting your computer with antivirus software is also a good idea. Bank of America clients can download IBM® Trusteer Rapport for an added layer of protection against online fraud.

Other Circumstances For Extended Statutes Of Limitations

In some circumstances, the statute of limitations is longer than three years. For example, if you dont report income that youre required to report, and it exceeds 25% of the income shown on that years tax return, the IRS has six years to audit your return.

In addition, not filing or filing a fraudulent tax return allows the IRS to audit you indefinitely. So keep any tax records for those years permanently.

Also Check: How Much Does H& r Block Charge To Do Taxes

How Can I Get Copies Of My Old Tax Returns

If you have lost or misplaced your old records, then maybe you are wondering how to get a copy of my tax return. If you use a tax software, then you should be able to obtain copies of your prior records from the software on your computer. If you use a CPA for your taxes, then they likely have copies of your old records that they can provide. You can also contact the IRS and obtain copies of your old tax returns. You can order them online, by mail, or over the phone.

What Receipts To Keep For Taxes

How Long Should You Keep Records?

As much as theyâd love to take your word for it, the IRS requires that you keep documentation that backs up the income, deductions, and credits you report on your tax return.

Here are the main types of records you should hang on to:

  • Receipts
  • W2 and 1099 forms
  • Any other documentary evidence that supports an item of income, deduction, or credit shown on your tax return

Although you might not always need them to do your taxes, you should also keep the following business documents on hand:

  • Any contracts youâve signed
  • Articles of incorporation
  • Company health, safety, and any other regulatory documents
  • Annual reports

Because the burden of proof is on you to back up every item on your tax return with documentation, the best approach to recordkeeping for small businesses is to try to keep as many records as you can.

Need some help with your bookkeeping and recordkeeping? Check out Bench. Weâll do your bookkeeping for you, and give you access to our app where you can store all your records.

Read Also: Where’s My Tax Refund Ga

How Long Should You Keep Business Asset Records

Business owners typically deduct costs for property and equipment that are used for the business, which reduces their tax bills. Owners might also claim deductions for the depreciation of property or equipment, or they might amortize costs like franchise fees. Because these types of records are usually part of your tax return, you should follow the same rules for tax records, counting the year that you disposed of the property as the start of the period of limitations. Keep deeds for property and titles to vehicles among these records.

When you sell one business property and buy another in an exchange such as a 1031 Exchange, you will want to retain the records on the property you sold as well as the property you acquired until the period of limitations runs out on the new property.

Get More With These Free Tax Calculators And Money

  • See if you qualify for a third stimulus check and how much you can expect

  • Know what dependents credits and deductions

  • Know what tax documents you’ll need upfront

  • Learn what education credits and deductions you qualify for and claim them on your tax returnGet started

The above article is intended to provide generalized financial information designed to educate a broad segment of the public it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

You May Like: How To Buy Tax Lien Certificates In California

Youre Our First Priorityevery Time

We believe everyone should be able to make financial decisions with confidence. And while our site doesnt feature every company or financial product available on the market, were proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.Here is a list of our partners.

What Other Documents Should You Keep

How long should I keep records relating to my staff for ...

You might also have leases for your business premises, insurance policies, and business loan records, among other documents. Leases and insurance policies can be used to help your negotiating position when it comes time to renew, and you will want to keep them until they are replaced.

You should retain lease and business loan documents that pertain to tax deductions for the seven-year period described earlier. Keep records of satisfied loans for seven years also.

You needn’t keep bank and credit card statements longer than a year, unless they contain entries that you are using for your tax filing. If they do, follow the rules for tax documents discussed earlier.

Also Check: Where Is My Federal Tax Refund Ga

How Long To Keep Tax Records: Can You Ever Throw Them Away

Once youve submitted your tax return to the Internal Revenue Service each year, the last thing you probably want to think about is how to store your tax records. But making these arrangements is essential to protect yourself in the event of a future IRS audit.

The general rule is to keep your tax records for three years, but there are several important exceptions for when you might need to keep your tax records for a longer period as a taxpayer. Read on to learn how long to keep your tax records and when you can safely dispose of them.

Keep Your Tax Documents At Least Until The Time Limit For An Audit Runs Outand Even Longer For Some Records

Now that tax season is over, you can forget about taxes for a while! But what should you do with all the forms, receipts, canceled checks and other records scattered across your desk? Do you need to keep them, or can you throw them away ? The IRS generally has three years after the due date of your return to kick off an audit of your return, so you should hold on to all your tax records at least until that time has passed. But you should keep some records even longer, and it’s also a good idea to hold onto copies of the return itself indefinitely.

Also think about keeping certain documents for non-tax purposes. For instance, it might be wise to save W-2 forms until you start receiving Social Security benefits so you can verify your income if there’s a problem.

Here’s a general rundown on how long you should keep certain common tax records and documents. Of course, you can always hang on to them longer if you wantbut don’t become a pack rat!

Recommended Reading: Do I Need W2 To File Taxes

How Long Should You Keep Business Tax Records

Keep business income tax returns and supporting documents for at least seven years from the tax year of the return. The IRS can audit your return and you can amend your return to claim additional credits for a period that varies from three to seven years from the date you first filed. But it’s a good idea to use seven years as your guide for keeping these documents.

If you don’t file a return at all, the IRS can come after your business at any time.

Examples of supporting documents include:

  • profit and loss statements
  • financial statements
  • invoices.

Most Taxpayers: Three Years

How Long Should You Keep Old Tax Records

The statute of limitations for an IRS audit expires after three years. That means most taxpayers should keep their tax records for three years after the date they filed their return, or two years after they paid tax whichever is later.

Real estate ranking:Buying a house? Here are 10 cities with the biggest increase in homes for sale

There are three exceptions to the IRS audit time limit. The agency can go back six years for an audit if you under-reported your gross income by 25 percent or more.

The IRS can also audit returns that claim a capital loss on worthless securities or take a deduction for bad debt, up to seven years after the return was filed.

If you didnt file a tax return or filed a fraudulent one, there is no statute of limitations for an IRS audit. In these cases, keep all your records indefinitely.

Recommended Reading: How Can I Make Payments For My Taxes

How Long Should I Keep Records

  • Tax Exempt Bonds
  • The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.

    The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. The information below reflects the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

    Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.

    Period Of Limitations That Apply To Income Tax Returns

  • Keep records for 3 years if situations , , and below do not apply to you.
  • Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
  • Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  • Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  • Keep records indefinitely if you do not file a return.
  • Keep records indefinitely if you file a fraudulent return.
  • Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
  • The following questions should be applied to each record as you decide whether to keep a document or throw it away.

    Read Also: How Does H& r Block Charge

    How Long Do Federal And State Tax Returns Need To Be Kept

    OVERVIEW

    If the IRS or state government questions your tax deductions or business losses, you may need a copy of your return.

    Dropping a tax check in the mail doesn’t mean you can then throw out the paperwork.

    If the IRS or state government questions your deductions or business losses, you may need a copy of your returnnot to mention W-2s and other documentationto prove your return was accurate.

    However, there are limits to how far back the government can look.

    How Long To Keep Tax Records And Receipts For

    The (Long) List of Financial Documents You Should Keep ...

    Generally, you should hang on to tax records and receipts for three years. But in some cases, longer.

    Record typeHow long to keep it
    Past tax returns
    If you omitted income from your return, keep records forâ¦.6 years
    If you deducted the cost of bad debt or worthless securities, keep records forâ¦7 years

    Also Check: Efstatus Taxact Com Login

    How Long Should You Keep Your Tax Returns

    Once you file your taxes, you should plan to keep your tax returns for a minimum of three years from the date you filed your original return.

    You can also keep them for two years if you are calculating from the date you paid the tax, whichever comes later. However, if you file a claim for a loss from securities or bad debt deduction, then you should plan to keep your records for at least seven years.

    How Long To Keep Your Current Records

    How long do you need to keep all these documents? That varies based on a few factors. While the timelines below reflect federal guidelines, its important to note that your state tax authority might operate with different standards.

    Even if you dont need to retain some records for federal tax purposes, you might want to save them for other reasons, says Alison Flores, principal tax research analyst, The Tax Institute at H& R Block. Your state may have a longer time to audit. For example, California generally has four years to audit a state income tax return. Also, an insurance company or creditor may have different record-keeping requirements.

    You May Like: Tax Lien Investing California

    More articles

    Popular Articles