An audit from the Internal Revenue Service can cause headaches for millions of taxpayers who were not aware of how long they should keep archives of their tax returns.
It is wise to keep verifiable records of your tax filings in order to show proof of income, deduction or credit shown on the original tax return. In addition, if you keep copies of your return, it may assist you in filing future returns for years to come.
The IRS has a set period of time to go back and collect unpaid tax debt, as well as a recommended period that all taxpayers should archive their tax documents. Read below to find out the best methods for keeping a detailed tax archive.
How long should you keep tax records?
The Internal Revenue Service has a complete outline for the proper number of years taxpayers should archive and store their tax records based on various factors.
First, the agency recommends that you keep them for three years from the date you filed your original tax return or two years from the date on which the taxes were paid. Moreover, individuals should also consider keeping records for seven years if they ever file a claim for a loss from worthless security or bad debt deduction, according to the IRS.
If an individual does not report their income, they should keep records for six years, especially if it is more than a quarter percent of the gross income shown on their return. If they do not file a tax return, they should keep all their tax-related records indefinitely.
Which ones should you keep?
The types of documents you should archive and make copies of include various tax forms that are essential to your April filing. The recommended documents include a long list of tax-related forms such as W-2s, 1099s, title insurance fees, records of itemized deductions, mileage logs, stock records and 1040s. Having a proper archive will save you headaches from the IRS down the road.
In case of an IRS audit, you should keep a copy of your tax return along with proof that you filed it on a certain date. The type of recommended proof includes a registered receipt or mail slip for when you sent your tax documentation.
How many years can the IRS go back to collect taxes?
The statutes of limitation provide that the government, or the IRS, a specific time frame to go back for collection after assessment of tax liability. The collection statute expiration ends the government's right to be able to receive the collection of the liability, according to the IRS Code section 6502.
The IRS has a decade, or 10 years, to collect unpaid tax debt, but once that time expires, then the debt it wiped from the books.