Keeping Records: How Long is Too Long?

This guest post was written by Debbie Dragon, from Backtaxeshelp.com, a site designed to help you pay back taxes. Owing back taxes to the IRS is stressful, and negligence will only worsen the situation. Learn how to get back tax relief.

Are tax records taking over your house? Well don’t throw them out just yet, they may come in handy. There are federal laws that document how long to keep supporting tax documents. While many people often work hard at fighting clutter around the home and choose to dispose of things they feel they no longer need, when it comes to tax documents there are several regulations to be followed to ensure the necessary paperwork is available should it be needed down the road.

Period of Limitations

This is the amount of time that people have to amend their tax return or that the IRS can assess more taxes (i.e. audit). The most common period of limitations is three years. Keeping records for three years is the norm. After that, unless there has been a substantial understatement of income, the Period of Limitations is longer at six years.

If there is a fraudulent tax return, the IRS will have reason to suspect future fraud and all records should be kept indefinitely. Likewise, if you have not supplied the necessary tax information then records should be kept indefinitely. The statute of limitations does not begin until the tax form has been filed.

The rule of thumb to keep all tax related documentation is three years. However, if a document is required to back up related tax income or deductions then the paperwork should be kept indefinitely. For example, keep records to support any depreciation, amortization or deductions that are done. These documents may include costs for machinery or education and should essentially be kept filed away anyway for reasons besides taxes. If the statue of limitations has run out, some of these documents may be necessary to back up any insurance claims or for investment purposes.

What Happens If You Don’t Have the Records

Not having adequate records to support the tax forms is not an acceptable excuse in the eyes of the IRS. If the “I don’t have that” excuse is used, the IRS will simply extrapolate to the best of their ability, what your income was. The only acceptable reason for not having adequate records is in the case of a natural disaster. For example, any person that fell victim to hurricane Katrina and having proof of being a victim of the hurricane may have a reason to say, “I don’t have that”. Otherwise, it is up to the tax payer to do everything in their power to obtain copies of the necessary documents.

Keep a Copy

When sending in a tax return, remember to get a copy of the return and all related documentation. Keep all of the paperwork filed in a safe place. Remember that the IRS gets millions of copies of tax receipts and returns which are all handled by humans who are capable of misplacing things. Keeping adequate copies and sufficient documentation should keep the IRS at bay should an audit become necessary. It will also help prevent weeks of frustration when documents need to be produced in a timely manner. Additionally, when mailing tax documents, use the Return Receipt Requested/Certified Mail services from the US Post Office to prove the tax office in fact did receive your return in a timely manner. Keep postal receipts and stubs together with the tax forms and supporting paperwork in individual file folders clearly marked by the tax year.

Kelly says: I just finished filing both my French and my American taxes (as an expatriate, I have until the 15th of June to file my American tax return). Now I’m getting ready to tackle disposing of my old paperwork and set up my filing system for 2010. I know, I know, I’m only six months late, but this was a very timely guest post!