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When Can You Stop keeping Tax Records?
By Darrin Mish of Law Offices of Darrin Mish
In case you ever get audited, it's better to save your tax records, instead of throwing them out. Unfortunately, this can lead to keeping more documents and papers than you really have to keep. But most people do not know how long they need to store tax records before disposing of them. There is the fear that the IRS might come knocking when old tax records are discarded. So when it comes to keeping tax records, what is the real truth? How long before you can dispose of them and not worry about IRS issues? The first criteria when deciding which tax records to discard depends on the Internal Revenue Services' official statute of limitations. This statute of limitations is the 10-year period within which the IRS can audit your tax debts and tax records. The IRS cannot legally collect taxes or audit returns from those periods after 10 years has passed. This statute of limitations is put in place because records typically get lost and memories regarding tax records are either forgotten or just aren't particularly accurate. You can't pursue tax refunds more than ten years ago, but you'll have a feeling of closure as the IRS can no longer come after you. Basically, your IRS problems are gone after ten years. You will wish to utilize the second criteria, the three-year rule, as a guide. Basically, the assessment of additional taxes has a statute of limitations for 3 years. For instance, if you want any additional money from a refund, the 3-year period begins from the date you submitted the original tax return. However, there are also a few exceptions to this rule. For instance, if you only reported a portion of your total income and the amount that was left unreported amounts up to more than 25% of the total gross income which was originally reported, then the limitations period will actually be 6 years. Another exception is when you decide to claim a loss on a worthless security. This has a limitation period of seven years. Finally, if you decide to not file a return, or just file a tax return which in fact is really nefarious, then there is no statute of limitations. The IRS has the power to go after you at any time. When deciding which documents to save and which ones you must discard, you must do a true assessment of your odds of being audited. In the event of an IRS audit, these documents will back up your case. If, for any reason, you think that you might be audited, you'll have to keep documents such as records of your capital gains and losses, expenses on your home, tax returns, brokerage, bank and employment statements, and business records. When fighting an IRS audit, these documents are the center of your case. If you feel that you have a good chance of being audited by the IRS, then by all means, keep these documents for the whole 10-year period of the statute of limitations so that you're well-protected against any IRS issues. |
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