How Long You Should Keep Your Tax Records?
Like many citizens in America, you could possibly have some tax returns from ten years ago, just sitting on your desk or in your filing cabinet. You should know that you don’t need to hold on to tax records for that long.
The IRS can give you specific guidance on this topic.
Here’s a look at those recommendations that can help you figure out how long you should keep your tax records.
Period of Limitations – What Is It?
Your records of taxes include not just your tax forms, but also all the necessary files to support each cent of income. You see your credit list on your return.
Having that in mind, the IRS often recommends that you keep this documentation at least until the period of limitations for that tax return.
To explain it better, the period of limitations is the time during which you can adapt your tax return to claim a credit or refund.
The recommendations below show perfectly these periods of limitation. You always want to be prepared.
If You Have Not Filed Your Tax Returns
If you have not filed tax returns, or if they are incomplete, the best thing to do is to hold the records for longer periods of time, according to the IRS.
In case your business is fitting in any of these categories, you will hear from the IRS:
- You didn’t report the income that you should have. So it’s going to be more than 25% of the gross income that you get back – you should keep your records for 6 years
- Skipping filing a return at all, you should, in that case, keep records indefinitely
For the IRS, fraud is a serious issue and you will do yourself only harm if you continue to ignore it. With that being said, you should take care of an incomplete filing so you don’t face any issues later on.
You need to be aware that if penalties and interest are not being taken care of, can lead you to add up to large sums of money.
Filing Your Tax Forms Precisely and on Time
The IRS-recommended retention periods are much shorter for taxpayers who have filed their tax forms on time and accurately. If you are one of those people, the IRS says:
- You need to keep all records relating to your return for the last 3 years
- If you are trying to get credit after you file for a return, you should know that keeping records for 3 years from the date you filed your first is a must.
- If you filed a claim for a bad debt deduction you may have, you need to keep your records for 7 years.
- Keep your employment tax records for a minimum of 4 years.
The IRS will tell you that they usually limit their audits of taxpayer returns to those who filed within the last 3 years. However, if they identify a problem with your taxes, they may go back up to seven years or more.
Storage space can help you with this. You might want to retain your records for up to 7 years out of caution. Better safe than sorry.
Think About Storing Your Tax Records Digitally
This may be the perfect way for you to keep your tax records organized and in one place. People nowadays are storing their documents and papers digitally.
What makes this even easier, many institutions now also issue digital copies of tax forms, reducing your tax paper trail. Also, it is better for the environment!
You should think about reducing paper waste and saving trees. By keeping your tax records and receipts stored online or on your cloud, you can do just that. But you need to make sure your online storage provider is keeping all of your information safe. You want to make sure you are not a victim of a cybercriminal.
They can easily steal your Social Security number or your other precious data if you don’t secure your tax records.
Keep in Mind
Sometimes, you are not able to pay right away. So the IRS can set up some sort of payment plan for you. It will allow you to pay off your debt slowly over time. Whatever you choose to do, just don’t throw out your tax records before your period of limitations expires.
A professional tax accountant can be very important when it comes to keeping up with your tax return issues.
Here at Your Part Time Accountant, we can help you see if you are wrongly billed. Having that in mind, the IRS does sometimes make mistakes – an accountant can step in and help with your IRS dealings.