Article Highlights:
Taxpayers often question how long records must be kept and the amount of time IRS has to audit a return after it is filed.
It all depends on the circumstances! In many cases, the federal statute of limitations can be used to help you determine how long to keep records. With certain exceptions, the statute for assessing additional tax is 3 years from the return due date or the date the return was filed, whichever is later. However, the statute of limitations for many states is one year longer than the federal limitation. The reason for this is that the IRS provides state taxing authorities with federal audit results. The extra time on the state statute gives states adequate time to assess tax based on any federal tax adjustments that also apply to the state return.
In addition to lengthened state statutes clouding the recordkeeping issue, the federal 3-year rule has several exceptions:
If no exception applies to you, for federal purposes, you can probably discard most of your tax records that are more than 3 years old; add a year or so to that if you live in a state with a longer statute.
Important note: Even if you discard backup records, never throw away your file copy of any tax return (including W-2s). Often the return itself provides data that can be used in future tax return calculations or to prove amounts related to property. You should keep certain records for longer than 3 years. These records include:
As we become more and more a paperless society, you may wonder if you must keep the paper version of the records mentioned in this article. No, you don’t – the paper documents can be scanned and maintained on your computer or in the cloud. But if you do convert the records to electronic files, be sure to maintain a back-up that can be retrieved if you have a computer crash or cyber attack that takes over your computer.
If you have questions about what records to retain and what you can dispose of now, please give this office a call.
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Ocean City, Maryland 21842
(410) 524-2720
FAX: (410) 524-5925
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