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:
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