When we talk of tax returns, we are used to keep them at least for 7 years in case the Internal Revenue Service (IRS) or the state government has doubts about them.
But, for most of Taxpayers 7 years might be an exaggerated amount of time.
So, the question comes: how long should you keep your tax records? – Whatever back-up document is like W-2 or form 1099 – will depend of your tax condition for the year and how long is the period of limitation of the return.
The period of limitation is the lapse of time you have to make modifications to your tax return, whether for a credit claim or a reimbursement, or in the other hand, the amount of time the IRS has to determine additional taxes.
For most tax payers: Three years
The period of limitation for an IRS audit expires after three years. What it means that for most Taxpayers is mandatory to maintain their records the three years after the date of your return, or two years after paying taxes, whatever occurs later.
However, there are three exceptions to the period of limitation for IRS audits. The agency can go back up to six years for an audit if you overestimated your gross income for 25% or more in your tax return.
The IRS can also audit your tax return even seven years after the presentation, when in this is indicated a capital loss in valuables or junk securities, also in tax returns where a deduction is made for a bad debt.
If you didn’t declared or made a fraudulent tax return, there is no time limitation for an IRS audit. In these cases, keep stored all your records for unlimited time.
Other documents related to taxes
The IRS also recommends that tax payers keep the tax records of employment for at least four years after the due date or tax payment, whatever occurs later.
With stocks, bonds and properties, it’s advisable that tax payers keep their tax records until the sale of the assets. For example, you could need this documentation to determine depreciation, amortization or depletion deduction, as well as to calculate the earnings or losses after the sale of the assets.
State taxes requirements
For state taxes, you would need to keep for more time your financial and tax records, depending of the laws of regulations that rule the period of limitation of the audits of the state where you live.
In case that you underestimated your income, or have fraudulent information on your return, the period of limitation could be longer.
Keep your tax records stored in a safe place
We advise you to keep your tax related documents in a safe place, no matter if they are paper documents or digital files.
Paper documents must be stored in a safe place, preferably locked under key, whether a desk drawer or a safe.
The electronic files must be backed up, and if possible encrypted by some specialized software to avoid access to malwares and hackers.
Also, the IRS suggests to scan paper documents and financial statements, in a format that can be encrypted and saved secure in a flash drive, a CD or DVD with photos and videos of the assets.
GlobalTax, your tax allies
If you’re looking for places to do taxes near the Metropolitan Area of Washington don’t look further.
GlobalTax is the company of choice and the most recognized tax preparation firm in the Northern Virginia Metropolitan area (DMV). Our team take pride in educating the public in general and our clients in particular in tax matters.
Take in mind that Taxes are complicated even for the most highly educated in society and failure to comply with the tax laws can get you in a lot of trouble or make you lose tons of money. But with our tax services, you will pay the right amount for your tax return, taking advantage of each of the possible deductions.