When Can You Stop keeping Tax Records?

In case you ever get audited, it's better to store your tax records, instead of throwing them away. Unfortunately, this can result to keeping more documents and papers than you really have to keep. But many people don't know how long they must store tax records before disposing of them. The prevailing worry that once the old tax records are discarded, the IRS might come knocking. So what is the real truth when it comes to which tax records you must to keep? How long before you can totally throw them away and not fear of any potential IRS problems?

The first criteria when deciding which tax records to throw away depends on the Internal Revenue Services' official statute of limitations. The statute of limitations on any tax debts, or the period within which the IRS can audit your tax records, is ten years. After 10 years has elapsed, the IRS cannot legitimately audit those returns, collect taxes from those periods, and generally even speak or ask about your tax history beyond that ten-year period. This statute of limitations is set in place because records naturally get lost and memories pertaining to tax records are either forgotten or just are not very accurate. You can't pursue tax refunds older than 10 years ago, but you'll have a feeling of closure as the IRS can no longer come after you. Essentially, your IRS issues are gone after ten years.

Beginning on the date of the filing of the original tax return is the 3-year assessment for additional taxes as the second criteria. As an exception to this rule, the statute of limitations is extended to 7 years when you claim a loss on worthless security. Another exception is when there are unreported fractions of your total gross income amounting to 25%, the statute of limitations is extended to six years. Lastly, there's no statute of limitations when you do not file a tax return, or file a nefarious one.

Examind your chances of being audited before you throw out documents. If an audit is likely, then it is recommended to keep documents that would support your case such as employment, brokerage, and bank statements, capital losses and gains, tax returns, business records, and expenses on your home for the full 10-year statute of limitations period. You will be prepared against IRS problems this way.

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Originally posted 2008-11-23 22:41:53. Republished by Blog Post Promoter