Sunday, September 19, 2021
Sunday, September 19, 2021

Tax Corner: All about keeping records for tax purposes, and what you can’t do!

By Neil Seidler, CPA, CMA
I received the following question about keeping tax records. I explain what you can and can’t do about keeping records for tax purposes.
Question:
  (1) How long do I need to keep my tax records? (2) Can I dispose of them once my current year return is processed?

Answer:  (1) It depends; and (2) NO, absolutely not!!

It is the responsibility and obligation of the taxpayer to keep accurate and detailed records to document the income, expenses, gains, losses and deductions that you have reported on your tax return. You also have to know the basis or adjusted basis (the cost) of your home, assets and investments.

IRS instructions for keeping tax records

The IRS provides many guides, instructions and publications for keeping records. These highlights are extracted from those publications.

The records to maintain include your purchase contract and settlement papers for property and investments that you have purchased. You must also keep other objective evidence if you acquired assets by gift, inheritance or similar means. You should keep any receipts, canceled checks and similar evidence for improvements to property or other additions to investments and assets.

How you keep records is up to you. However, they must be clear and accurate and must be available to the IRS.

How long to keep supporting documents

You must keep your records for as long as they are important for meeting any provision of the federal tax law. Keep records that support an item of income, a deduction, or a credit appearing on a return until the period of limitations for the return runs out. (A period of limitations is the period of time after which no legal action can be brought.)

For assessment of tax you owe, this is generally 3 years from the date you filed the return. For filing a claim for credit or refund, this is generally 3 years from the date you filed the original return. Otherwise, it is 2 years from the date you paid the tax, whichever is later.

Keep records regarding cost basis longer

You may need to keep records relating to the basis (cost) of property and investments for longer than the period of limitations. Keep those records as long as they are important in figuring the basis of the original or replacement property. Generally, this means for as long as you own the property. After you dispose of it, it is for the period of limitations that applies to you.

The IRS offers many publications and information pages on keeping records. Just go to www.IRS.gov and search “Keeping Records”.

Two publications on this subject that are worth reading are:

Publication 530, Tax Information for Homeowners

Publication 583, Starting a Business and Keeping Records

*****

We welcome your questions and inquiries. If you have tax-related questions, or any other questions that we may be able to address, please email us or comment below and we’ll try to answer them in a future article.

If you need assistance with your tax filings or other accounting matters please feel free to contact me. I’m happy to help. You can email me at Neil@profitprocpa.com. My business website is ProfitPro Accounting and Tax, or call my office at (702) 754-1338.

We present this material for informational purposes only. It is not intended to provide, and should not be relied on, for tax, accounting or legal advice. Therefore, readers should consult their own tax, accounting and legal advisors to discuss their own personal matters.

Read Neil’s most recent post: Keeping track of income and expenses for a business

##RVDT1560

Comments

Subscribe
Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

4 Comments
Newest
Oldest
Inline Feedbacks
View all comments
rvgrandma
5 months ago

For some reason I still have tax returns for every year since we were married in 1971. I know they say only 7 years but I like looking back to see how little we lived on back then. Back then I think our income was around $3000 for the year. We also bought a new Mercury Montego for $3200 I think.

larry
5 months ago

i do not keep records. as the state and feds take everything anyhow. and when i die they even get the body.
but for now the feds say i owe $4,000 USD, and each year this amount grows, i can never pay it off.
seeing today was payday, and after the bills i had only $149.USD to get me through till next friday. a tank of gasoline here will set me back $80+.

Montgomery Bonner
6 months ago

It should be noted, the IRS takes years to review your submitted claim. I have gotten letters from them three years back. So, I keep ours for 7-10 years, yes what a pain. Some of those are electronic records, so keep backups of those on DVD, and put in your tax file, along with the paper stuff. You can buy file boxes at office stores to keep the files in. As a 10 year point rolls around I go through and shred all the documents which have PPI on them, and then recycle all the other stuff. Flipping over the folder can use it again for something else. If making DVD file is not possible, back up to portable hard drive or USB stick, and keep that with file.

rvgrandma
1 year ago

I have all our tax returns from our first year of marriage in 1971 to now. Just can’t throw them away. Love to look at little we lived over the years, who much we paid for new cars, houses, etc.

Follow us!

31,714FansLike
26,416FollowersFollow
66,000SubscribersSubscribe