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Spring Cleaning:
Tax Records You Can Throw Away
 Spring
is a great time to clean out that growing mountain of tax and
financial papers that clutters your home and office.
Here's what you need to
keep and what you can throw out without fearing the wrath of
the IRS.
Let's start with your "safety
zone," the IRS statute of limitations. This limits the number
of years during which the IRS can audit your tax returns.
Once that period has
expired, the IRS is legally prohibited from even asking you
questions about those returns.
The concept behind it is that
after a period of years, records are lost or misplaced and
memory isn't as accurate as we would hope. There's a need for
finality. Once the statute of limitations has expired, the IRS
can't go after you for additional taxes, but you can't go
after the IRS for additional refunds, either.
The
Three-Year Rule
For assessment of additional
taxes, the statute of limitation runs generally three years
from the date you file your return.
If you're looking for an
additional refund, the limitations period is generally the
later of three years from the date you filed the original
return or two years from the date you paid the tax. There
are some exceptions:
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If you don't report all your
income and the unreported amount is more than 25% of the
gross income actually shown on your return, the limitation
period is six years.
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If you've claimed a loss
from a worthless security, the limitation period is extended
to seven years.
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If you file a "fraudulent"
return, or don't file at all, the limitations period
doesn't apply. In fact, the IRS can get you at any time.
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If you're deciding what
records you need or want to keep, you have to ask what your
chances are of an audit. A tax audit is an IRS verification of
items of income and deductions on your return. So you should
keep records to support those items until the statute of
limitations runs out.
Assuming that you've filed on
time and paid what you should, you only have to keep your tax
records for three years, but some records have to be kept
longer than that.
Remember, the three-year rule
relates to the information on your tax return. But, some of
that information may relate to transactions more than three
years old.
To read the rest of this article
that talks about a checklist of the documents you should
hold on to,
click here.
To read more articles on our web
site
click here or go to
www.eSullivan.net and click on the Newsletter section.
As always you can call our offices if you have any
questions about these or any other accounting related issues, at 301-657-8080.
Regards, Paul Sullivan, CPA |
