Record Retention

Your taxes have been deposited. Your repayment was deposited. You’re planning deductions and expenses for another year. So what should you do with the tax documents for this year? You may need to use the tax documents of your previous year as a reference or as evidence if you are audited. You should save your documents, but many taxpayers wonder exactly what the time frame is. The IRS says that it depends on the document, which means what the costs are and what the document proves. You should also keep copies of your previously filed tax returns, as they can help you in the future.

Records supporting revenue and deductions should be kept until the time limit for the submission of an amended return expires. If you want to claim additional credits or refunds you missed in your original return, you may need to file a modified return. There are different scenarios in which the timeframe for document retention changes. The best practice is to follow the IRS guidelines, which state: unreported income in excess of 25 percent of your gross return income requires you to keep related documents for 6 years. You must keep all records indefinitely if you have submitted a fraudulent return or if you have not submitted a return.

Returns that have been modified to claim additional credits should have records kept for three years from the date on which the original return was filed, or two years from the date on which the tax was paid, depending on the length of time. Seven years should be kept records that support the claim of losses on worthless securities or bad debt. Employer-related tax payments should be recorded for four years, depending on which date the tax was due or the date you paid.