How Long Do I Need To Keep My Tax Records?Posted on April 5 2012 by admin
You’ve filed your return, but now you have a pile of documents and you are wondering whether you really need to hang on to all of it, and if so, for how long? The answer is that there are some guidelines to follow, but it also depends on the types of documentation that you have.
In general tax returns should be kept indefinitely and the supporting records should be kept for six years. These records may have to be produced if the IRS was to audit your return. In addition, lenders, co-op boards, or other private parties may require that you produce copies of your tax returns as a condition to lending money, approving a purchase, or otherwise doing business with you.
Except in cases of fraud or substantial understatements of income, the IRS can only assess tax up to three years after a return is filed. For example, if your 2011 individual income tax return is filed by its due date of April 17, 2012, the IRS will have until April 17, 2015 to assess a tax deficiency against you. If you file your return late, the IRS generally will have three years from the date you filed the return to assess a deficiency.
However, the three-year rule isn’t ironclad. The assessment period is extended to six years if more than 25% of gross income is omitted from a return. In addition, where no return was filed for a tax year, IRS can assess tax at any time (even beyond three or six years). If IRS claims that you never filed a return for a particular year, keeping a copy of the return will help you to prove that you did.
Records relating to property may have to be kept longer. Keep in mind that the tax consequences of a transaction that occurs in one year may depend on things that happened in earlier years—and that the period for which you should retain records must be measured from the year in which the tax consequences actually occur. This may be significant, for example, where you sell property that you bought years earlier.
Similar considerations apply to other property which is likely to be bought and sold—for example, stock in a business corporation or in a mutual fund, bonds (or other debt securities), etc. In particular, remember that if you reinvest dividends to buy additional shares of stock, each reinvestment is a separate purchase of stock. The records of each reinvestment should be kept for at least six years after the return is filed for the year in which the stock is sold.
So keep in mind that even though your return is filed, you always need to keep copies of your returns and you should hold on to your supporting documents for at least six years.
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- Deducting Travel Costs Related to Volunteer Work
- Partnership Agreements: Why You Should Read the Fine Print
- New Sales Tax Exemption for Manufacturing Businesses Available in August
- Inherited IRAs Don’t Receive Bankruptcy Code Protection
- Mid-Year Tax Planning Tips
- Simpler Offshore Voluntary Disclosure Program Helps U.S. Taxpayers
- Proposed Simplification of Education Tax Breaks: The Good and the Bad
- Unused ITINs to Expire after Five Years
- The Decision: Part 2 – State Tax Impact and NBA Free Agency
- Millions of Amended Tax Returns Expected to be Filed