Worried about the amount of time to keep your personal income tax records? Sometimes taxpayers are required to present these documents when the government reviews or audits a filed return or is trying to levy or collect taxes. In addition, these documents are required by creditors, communities of owners, other interested parties who have requirements to determine before granting someone the right to use money or extend credit to obtain a property and for any other transaction that these documents consider necessary.

Keep your income tax records indefinitely. The accompanying records, income documents, and deduction source information that support financial evidence should generally be kept for six years. Generally, the time limit for the IRS to assess taxes for a given tax year is three years after the due date or tax return filing, whichever is later, except in cases of fraud or understatement. substantial income.

The IRS goes back more than three years when it determines that more than 25% of gross income is not reported on a return, considers it a substantial understatement of income, and the collection period can be extended to six years. Also, the IRS has no time limits and can collect taxes at any time when no return has been filed for a tax year. That is why it is necessary to keep your records for circumstances like these.

Holding onto your tax returns forever and other important source documents for six years should be enough. No one really knows when the IRS will try to go back to previous years and try to collect taxes. When tax returns are filed electronically, be sure to obtain a paper copy of the return from the accountant who prepared / filed your return.

Property records must be kept until the property is sold. The tax effects of operations carried out this year may be affected by purchases made in the past. These purchase documents should be kept until the property is sold. The following are some common examples:

The home was purchased in 1976 for $ 50,000. An additional $ 15,000 was incurred for renovations in 1993 and the home sold this year for $ 200,000. To calculate the profit from the transaction, the cost information must be available. (for example, purchase price plus renewals). In the event that the IRS disputes the return, the purchase and cost documents must be submitted to the IRS. In this example, keep the records for six years after the tax return due or filing date, whichever is later.

Some taxpayers have earnings that qualify for the principal home sale exclusion, allowing certain homeowners to exclude up to $ 500,000 of profit from the sale of a home. Even if this benefit applies to you, records related to the purchase and home improvements must still be kept. The benefit may not be available in the future and it is impossible to know how much the home will be worth in the future.

There may be cases where the new property assumes the cost of the old property. In this case, records of the old property must be kept for up to six years after the sale of the new property. Let’s say a commercial car was purchased in 2010 and it is now a trade-in for a new commercial vehicle in 2015. When the new commercial vehicle is sold, any gains or losses are based in part on the commercial vehicle purchase records. . Therefore, the records must be kept for six years after the due date or filing of the tax return, whichever is later.

Longer record retention periods also apply to investments in small business owned stocks, mutual funds, stocks, etc. For these typical investments, when dividends are reinvested, each dividend reinvestment is a purchase. Therefore, beginning in the year the investment is sold, records must be kept for six years after the due date or tax return filing, whichever is later.

For damaged and stolen property, the casualty and theft loss deduction calculation is determined, in part, by the cost of the damaged or stolen property. Having the records that support the cost of these properties is important to support your foundation. Therefore, beginning in the year of loss, records must be kept for six years after the due date or tax return filing, whichever is later.

For married people in whom separation or divorce becomes a possibility, you should ensure that you have access to any tax documents related to you that are in the possession of your spouse. Better yet, make copies of these tax documents as access to these documents may be difficult later on. Both spouses are responsible for joint returns.

Electronic record storage – This can also be practical and easier. The time required to keep the electronic versions is the same as for the paper versions. Always make a backup copy of your electronic tax records.

Damage or loss of records – Consider keeping your most important documents in a safe deposit box. Also consider keeping important records in a convenient central location.

Sometimes records that are lost or damaged can be rebuilt. For example, the CPA firm may provide copies of these damaged documents, as they are required by law to keep copies of tax returns for a period of three years. We recommend keeping copies of the statements and source documents electronically.

Also, other people / businesses that have helped you with the purchase or sale of property keep records. For example, you bought mutual funds from a mutual fund company; the company can help rebuild mutual fund costs.

However, it is still the safest course of action to keep copies of documents in the safest place possible, as you can never be sure whether third parties have actually kept records of the documents you need. This article is an example for illustrative purposes only and is intended as a general resource, not a recommendation. We hope this article has been helpful.