JACK PICKING TAX SERVICE
HOW LONG SHOULD YOU KEEP TAX RECORDS?
It depends on your circumstances. IRS states that you must keep all tax records as long as they are material to the administration of the tax law. That means holding your records as long as you are subject to audit by the IRS.
Normally, the IRS can audit your returns for three years from the time you file them or the due date, whichever comes later. So rule # 1 is, “Hold everything for at least three years.”
But the IRS has the right to go back beyond the three years, up to six years, to audit a return if it suspects that gross income has been underreported by 25% or more on the return.
In addition, there is no time restriction if a false or fraudulent return has been filed. IRS can go back as far as they want to assess tax, interest and penalties. To be totally safe, you may want to keep basic records for six to eight years. But if you are totally confident in the accuracy of your returns, the three year period is a minimum.
What records should you keep? You will want to keep copies of all tax returns filed together with all documents used to prepare the return such as W-2’s, 1099’s and any other income statements for items reported on the return. Also you will want to keep all backup information to substantiate your deductions for medical expenses, taxes, interest and contributions.
Records of assets must be kept until they are sold. This is necessary to determine the profit or loss of the asset. If you are depreciating the asset, you will need to keep records until the asset is fully depreciated.
Records for IRA accounts must be kept until the assets in the IRA has been fully distributed.