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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.
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