December 28, 2016

Denver Tax Attorney   For How Long Should I Keep My Federal Tax Records?Taxpayers often wonder how long they need to keep their tax records before they can tear them up and throw them in the trash. Unfortunately, putting your tax check in the mail doesn’t mean you can throw out your federal tax returns the following day.

If the Internal Revenue Service later decides to question your business losses or deductions, you will certainly need to prove that your return was accurate. This means you will need to supply them with a copy of your return, as well as of other documentation such as your W-2s.

The good news is you don’t have to hold on to these financial records forever. After all, there are set limits on how far back the government can look at these documents.

The length of time you need to keep your documents depends on various factors. Typically, you need to keep all records that support income, credit, or deductions reflected on your tax return until the statute of limitations for that particular tax return ends. The statute of limitations refers to the time period you are allowed to amend your tax return in order to claim a refund or credit, or to the period in which the IRS can assess any additional tax. These years typically refer to the period of time after the tax return was filed.

The IRS recommends all taxpayers keep their tax returns and all supporting documentation for up to three years from the date of filing or the date your tax return was due—whichever is later. The IRS statute of limitations for an audit expires after this period of time.

If you failed to report all of the income you need to report or under-report your gross income by 25 percent, then the IRS has the authority to go back up to six years from the date of filing. If you claim a loss for worthless securities or a bad debt reduction, then the agency can look back up to seven years. You may also need to consult with a tax professional.

Note that there is no statute of limitations if you do not file a tax return or file a clearly false tax return. In such event, it would be advised to keep your records for an indefinite period of time as there is no time limit on any IRS action. You will also most certainly need to consult with a tax professional.

What about records that are associated with property? Generally, it would be best to keep all records that are connected to property until the statute of limitations expire for the year that the property is disposed of. These records may be needed to compute amortization, depreciation, or a depletion deduction, as well as to determine the loss or gain of the property when you sell or dispose of it.

Categories: Tax Records