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Stop keeping Those Tax Records
By Darrin Mish
It is always best to keep tax records in case you find yourself getting audited. But you might fear that the IRS will come knocking once you dispose of records, so you will end up storing more documents than necessary. Which records need to be stored then? How long do you need to keep these records before you can get rid of them? The statute of limitations officially implemented by the Internal Revenue Service is the first criteria. The IRS can audit your tax records within 10 years. After that, they can no longer audit those returns or collect those taxes. This statute of limitations is set in place because realistically, records can get lost. Your IRS issues essentially disappear after ten years, though you can no longer pursue refunds after this period. You'll wish to use the second criteria, the 3-year rule, as a guide. Basically, there's a three-year statute of limitations for the assessment of additional taxes. For instance, if you want any additional money from a refund, the 3-year period starts from the date you submitted the original tax return. However, there are also some exceptions to this rule. For instance, the limitations period will actually be six years if you only reported a portion of your total income and the unreported amount is 25% of the the income reported. Another exception happens when you possess a worthless security and decided to claim a loss on that security. This has a limitation period of 7 years. Finally, if you decide to not file a return, or just file a tax return which in fact is really nefarious, then there's no statute of limitations. The IRS has the ability to pursue you at any time. Assess your odds of being audited before you discard documents. If an audit is likely, then it's advised to keep documents that would back up your case such as employment, brokerage, and bank statements, capital losses and gains, tax returns, business records, and expenses on your home for the whole 10-year statute of limitations period. This is your protection against IRS issues.
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