Tax Documents you must Maintain

IRS Statute of Limitations - Three Year Rule

This rule limits the number of years that IRS can audit your tax returns. For assessment of additional taxes, the statute of limitation runs generally three years from the date you file your return. The idea behind this is that after a period of years, records are lost or misplaced and memory isn't as accurate as well. Once the statute of limitations has expired, the IRS can't go after you for additional taxes. However there are exceptions to this general three year rule:

· Failure to report all income (Remember IRS expects you report your global income) and the unreported amount being more than 25% of the income shown on the return, increases the limitation period to six years.

· Claiming loss from a worthless security increases the limitation period to seven years.

· If you file a 'fraudulent' return, or don't file at all, the limitations period never begins to run. The IRS can get you at any time.

Assuming that you've filed on time and paid what you should, you only need to keep your tax records for three years, but some records have to be kept longer than that.

Check List of Tax Documents you must Maintain

Employment, bank and brokerage statements: All W-2s, 1099s, brokerage and bank statements that prove your income must be maintained for at least three years.

Itemized Deduction expense documents: In case you itemized your deductions you will have to maintain all the expense receipts, mileage logs and other documentation that help substantiate your expenses. Remember, with IRS the rule during an audit is you prove it or loose it! At K&M Accounting and Tax Services we recommend our clients to maintain a scanned backup of their documents on our client portal in case you misplace or loose the originals.

Business records: Business records can become a nightmare to maintain. Since your income is not directly reported to the IRS as in the case of a salaried W2 income, the IRS is even more stringent when it comes to checking business records. If you have a sole proprietorship and have filed business loss on your personal return, make sure you maintain all possible income and expense records.

Tax returns: Keep copies of your tax returns for at least 3 years. Those of you that are in the midst of the immigration process may want to hold on to the tax returns at least until after your immigration case is completed. At K&M Accounting and Tax Service, we recommend our clients to hold on to the tax returns for at least 3 years after the immigration case is completed.

Social Security Records: Check with the Social Security Administration each year to confirm that your payments have been appropriately credited. If the Social Security Administration records are wrong, you will need the W-2 or copy of your Schedule C (if you are self employed) to prove the correct amounts. Don't dump those records until after you've validated those contributions.

Keep in mind this column and the articles published here are only meant to provide you with high level information about tax and business matters and in no way should you consider this as tax advice. Consult your tax advisor regarding your individual tax situation.

This Article provides only an overview to the complex Tax Laws. It is not exhaustive nor a substitute for Independent Tax Advice provided by a Tax Accountant or a Tax Attorney familiar with your case.

Author:.

Krutika is the founder of K&M Accounting and Tax Services L.L.C. She comes from a family of accountants and is a fourth generation Accountant. Krutika provides direct leadership and consultation to Small Business clients. Prior to starting KM Accountant, Krutika worked in multiple positions for 12 years in the US and India with public accounting, tax consulting, retail and educ...

Go Deeper | Website

Want More?

 
New Graphic
Subscriber Counter