Tax Records - What You Should Keep And For How Long
Many taxpayers are confused about how long they should keep
tax records. The term "tax records" refers to your tax
returns and the documents that support the information in
the returns. These documents can include receipts, bank
statements, 1099s, etc. If you are one of the unlucky few to
be audited, these records will be vital to fending off the
IRS.
Tax Returns
To protect yourself from a nasty audit, you should keep all
of your tax returns indefinitely. The IRS has been known to
lose or misplace tax returns. While conspiracy advocates
argue that this is evidence of a nefarious scheme, the
simple fact is that the IRS receives millions of returns
over a three-month period and lost returns are inevitable.
So how do you protect yourself? You keep copies of every
single tax return.
A quick word on the IRS e-file program. If you file your
returns electronically, make sure you get copies from the
company that filed your return. All such entities are
required by law to provide you with paper copies.
Records Supporting Tax Returns
You should keep supporting tax records for a period of six
years from the date the returns were actually filed. In
general the IRS only has three years to audit you from the
filing date. For example, if you filed your 2000 tax return
on April 15, 2001, the IRS would have to start an audit by
April 15, 2004. Keep in mind that if you filed an extension,
the IRS will have three years from the date you submitted
the return. As is always case with taxes, there are
exceptions to this general time period.
If your tax return looks like the great American novel, the
running of the three-year audit period may not save you.
Failure to report more than 25% of your gross income gives
the IRS an additional three years to pursue you. Using the
previous example, the IRS would have until April 15, 2007 to
audit your 2000 tax return.
Property Records - Get A Filing Cabinet
You may need to get a filing cabinet if you hold property
for an extended period of time. For example, assume that you
purchased a home in 1980 for $100,000 and made $50,000 in
improvements over the years. You need to keep the purchase
records, mortgage statements and receipts that relate to the
improvements. When you sell the home, you will need the
records to determine the tax consequences of the sale, to
wit, your basis (original cost plus improvements) and
profit. If the IRS decides to take a closer look at the
reported profit, you will need to provide your tax records
to support your claims. Once you actually sell the property,
it is recommended that you keep all of the tax records for
an additional six years.
Divorce
Make sure you keep copies of all of your financial
documents, tax returns and supporting documents if you get
divorced. You should also keep copies of all divorce
agreements and court orders that cover property and
financial issues. When couples divorce, the tax and credit
consequences can be nightmarish. If you don't keep records,
you will have to ask your ex-spouse for them. Get the
records now to avoid doubling your misery!
Hopefully, you will never need to show your tax records to
the IRS. If you are one of the unlucky few that is audited,
your tax records should keep your feet out of the fire.
Richard Chapo is CEO of http://www.businesstaxrecovery.com -
Obtaining tax refunds for businesses by finding overlooked
tax deductions and credits through a free tax return
review.
MORE RESOURCES:
|
|
|
RELATED ARTICLES
Furnishing Evidence in E-Tax Compliance
Self-assessment relies on taxpayers voluntarily meeting their tax obligations. This concept is recognised in all tax statutes, which sets out taxpayers' primary obligations, and clearly spells out that taxpayers are required to determine the amount of tax payable correctly and to pay it on time.
Understanding Basic Tax Terms
If your like many, you don't always understand what people are talking about when it comes to Taxes. It's important to know the main tax terminology, especially when tax season comes around.
The Seven Deadly Tax Sins: Commonly Missed Deductions
It's that time again, the April 15 tax deadline is looming large. If youre like most people, you havent gathered all of your tax records, let alone filled your return.
To Tax or Not to Tax - This is the Question
To tax or not to tax - this question could have never been asked twenty years ago.Historically, income tax is a novel invention.
Access to E-records by Taxing Authorities: A Case for Pakistan (Part I)
Background issues of access to recordsTo assess the records at hosted remote retained out of the jurisdiction of Pakistan root many legal issues which are needed to be addressed. Hereinafter there is description of the emerging legal issue of access to e-records.
Alas! In E-Commerce Taxland
In trying to comply with tax laws for your e-business,
you may find yourself falling down the rabbit-hole,
going through the looking glass, and attending a Mad
Tea-Party.Common sense, logic, and fairness never did apply
fully to the field of taxation but this is especially
true of e-commerce transactions.
Tax Reduction Tips
In the rush to get tax returns prepared and filed by April
15th, many overpay their taxes. Following are a few tax
reduction tips that could help you save a bundle.
Taxation of Isle of Man Companies from April 2006
At the present time a company incorporated in the Isle of Man, owned by non-residents and which complies with the other statutory requirements, is not liable to Isle of Man taxation. Whilst locally trading companies pay tax at 18%, a qualifying offshore company pays a flat annual tax of £475 or £1,000.
Truly Bizarre Taxes: The Tax on Illegal Drugs
One can never underestimate the enthusiasm that politicians have for trying to hunt up tax revenues. The creativity of some politicians can lead to bizarre taxes and unfortunate results.
Complaince of Tax Return in Electronic Commerce Taxation
Emerging Legal issues of Tax compliance of e-business Self-assessment system relies on taxpayers voluntarily meeting their tax obligations by tax payee. This concept is recognised in all tax statutes, which sets out taxpayers' primary obligations to fill tax return on self-assessment, and clearly spells out that taxpayers are required to determine the amount of tax payable correctly and to pay it on time.
IRS Offer-in-Compromise, Hype or Hope?
"Settle for Pennies on the Dollar! IRS debts settled for $20
Wipe out the Penalties with an Offer"-such is the language of Offer-in-Compromise promoters. What they fail to tell you is that one has to qualify for an Offer and few taxpayers will be able to meet the tough standards for an OIC.
Hurricane Katrina - How To Use Your Business Loss To Get A Refund on 2004 Taxes
With the massive losses caused by Katrina, the economy of the Gulf Coast region is in extremely bad shape. Fortunately, there is a quirk in the tax code that can help you generate a large refund from your 2004 taxes.
Seven Key Tax Deductions for the Self Employed
As a sole proprietor, it's wise to familiarize yourself with the some key deductions that may reduce your tax bill for 2004.Small-business consultants generally recommend that you hire an accountant to prepare your tax returns, payroll and financial statements.
2005 Ford Escape Hybrid Certified For Clean-Fuel Deduction
If you are environmentally conscious and purchase a 2005 Ford Escape Hybrid vehicle that combines a gasoline-powered engine with alternative power methods, you are in line for a nice tax deduction.Ostensibly, the government uses clean power tax deductions as a method to promote the use of vehicles that are less harmful to the environment.
How to Reduce the Estate Tax Using the A-B Revocable Living Trust
In a past article I relayed the plight of the widow who stated:"I didn't realize what an A-B Revocable Living Trust meant and that it had to be divided between the survivor and the deceased spouse and that I am limited as to what I can use from his share."She told me that she only learned of this after her husband passed away.
Know A Tax Cheat? Get Paid To Tell The IRS
According to the IRS, taxpayers underpay their taxes by some $300 billion. If you know someone that is contributing to that deficit, the IRS may be willing to pay you up to $10 million for the information you provide.
History Of The Federal Income Tax
The powers of Congress, and the limitations set upon those powers, are set forth in Article I of the United States Constitution. Section 8 specifies both the power to collect, "Taxes, Duties, Imposts and Excises," and the requirement that, "Duties, Imposts and Excises shall be uniform throughout the United States.
Six Urban Myths About Taxation
Six Urban Myths - Taxation"I am proud to be paying taxes? I could be just as proud for half the money." - Arthur Godfrey Temporary Taxation in Canada In 1917, the Income War Tax Act (7-8 George V, Chap.
Need an Offshore Sales Office in a Tax Free Environment?
The 100 year old investment-banking firm of Warburg, Dillon Read (on Park Ave. N.
Paying Workers - What Can You Write-Off?
As your business grows, you are going to need help. This help comes in the form of employees and independent contractors.
|