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Income Tax Information FAQ |
How long should a Taxpayer keep tax records?
At a minimum, taxpayers should keep all supporting documentation for each tax return filed for 3 years following the normal filing deadline, or for 3 years after the date you filed your return, if filed after April 15th.
Why 3 years after the due date (or filing date, if later)?
Generally, the Internal Revenue Service (IRS) has 3 years from either the original due date of the return or the date the return was actually filed to audit a taxpayer's tax return and or assess additional tax.
Is there any tax documentation a taxpayer should keep longer?
A taxpayer should be careful to keep any records that might be needed for figuring taxes in future years. These records include:
Closing statements for the purchase of a home or other real estate
documentation of the cost of improvements made to property
brokerage receipts or statements showing the cost and purchase date of any stock, bond, or other investments owned
for inherited property, a copy of the decedent's estate tax return or other documents showing the date of death value of the inherited property
Sales of real estate, stocks, bonds and inherited property are very likely to have an impact on an individual's tax liability. Therefore, it is important that records for these items be available for use in preparing the taxpayers' income tax return in the tax period the above reference property is sold.
In the case of worthless securities, a taxpayer will need to keep those records for a period of 7 years.
Are there any other exceptions to the 3 year record retention rule?
There is a 6 year rule that applies to a taxpayer that fails to report income that is more than 25% of the gross income shown on the income tax return filed. The IRS has 6 years to audit the income tax return and / or assess the additional income tax. Generally, underreporting of this magnitude arises when income is unknowingly missing or mistaken at the time the income tax return is filed. In most cases, the omission or error comes to light before the end of the 3 year period.
Under certain circumstances, such as failure to file an income tax return, there is no limit on how long the IRS has to assess additional taxes will also fall under the no limit category.
What about records for a partnership, corporate or other type of income tax return?
The same rules apply for retaining supporting documentation for income tax returns regardless of whether the return is for an individual or, a corporation, a partnership, a trust or other type of taxpayer.
How long should a taxpayer keep actual records?
Even if a taxpayer disposes of the supporting documentation for an income tax return after the normal 3 year audit period has expired, it is prudent to keep copies of the income tax returns for a longer period. If practical, a taxpayer should keep copies of all income tax returns filed. We recommend retaining income tax returns for a minimum of 7 years.
