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 Recordkeeping for Taxes
| What to Keep and How Long Tax records should be kept on a year-round basis, not
hastily assembled just for your annual tax appointment. Without tax records, you can lose
valuable deductions by forgetting them on your tax return, or you may have unsubstantiated
items disallowed if you are audited.
Generally, returns can be audited for up to three years after
filing. However, the IRS may audit for up to six years if there is substantial unreported
income. The three and six year limits start with the filing of a tax return; if no return
is filed, the time limit never starts to run.
Which records are important?
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Records of income received |
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Expense items, especially work-related |
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Home improvements, sales, and refinances
(for homes with profit potential of $250,000 or more) |
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Investment purchases and sales information |
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The documents for inherited property |
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Medical expenses |
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Charitable contributions (records vary with value of gift) |
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Interest and taxes paid |
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Records on nondeductible IRA contributions |
How long should records be kept? Just how
long you should keep records is partly a matter of judgment and a combination of state and
federal statutes of limitations. Federal tax returns can be audited for up to three years
after filing (six years if underreported income is involved). It is a good idea to keep
most records for six years after the return filing date.
There are some records worth keeping permanently, partly due to
long-term needs and partly because they take up very little room. Consider permanently
retaining a copy of each year's tax return. Contracts, real estate buy/sell records, and
records of property improvements should be retained for seven years after the property is
sold.
If you are in business, your record requirements are more extensive. Please call
us; we will be happy to assist you with a system of record retention.
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