Most individuals in the U.S. know to keep their tax returns for three years in case the IRS decides to audit them, but few know that there are exceptions to that time limit. Some people throw away their oldest return when they file their new one annually, which is normally OK. However, in the following situations, taxpayers should keep records going back more than three years.
Taxpayers who have under-reported their annual income by 25 percent or more must keep their returns for at least six years — the IRS has that long to investigate and file a claim for back taxes.
Those who have never filed a tax return should keep all their tax documents and records indefinitely. There is no statute of limitations on tax evasion, meaning the IRS can prosecute you at any time. If you think that is a possibility, you should never throw out your documents — or, better yet, pay your taxes!
The same goes for fraudulent returns. The IRS can investigate, audit, and prosecute you for tax fraud many years later. This no-limit rule even applies to those who did not intentionally file fraudulent reports. Taxpayers who made errors on their returns are subject to the same rules and may face steep fines without documents to back up their claim. If your mistake was accidental and was not caught, it can be hard to know when to keep your returns indefinitely and when not to.
Any tax returns that claim a bad debt deduction or a loss from worthless securities must be kept for seven years.
Keep your employment tax records for a minimum of four years after the filing deadline or the payment date, whichever comes later.
You'll need your financial records relating to property to calculate depreciation, amortization, or a depletion deduction, as well as assessing the profit or loss when you sell the property. Keep these records until the statute of limitations expires for the year in which you sell or otherwise dispose of the property. Note that the 2017 Tax Cuts and Jobs Act (TCJA) placed a limit on the total annual deductible amount for state and local taxes (SALT). Beginning in tax year 2018, the SALT deduction for income, sales, and property taxes is limited to a combined total of $10,000.
If in doubt, keep your tax records for at least three years from your original filing date or two years from your payment date, whichever is later. If you filed your tax return before the deadline, it is treated as being filed on the due date. After the three years have expired, remember that while the IRS may no longer need your records, other parties such as your creditors or insurance company may need you to keep them for longer.
This article was provided by our partners at moneytips.com.
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