Maintaining Your Tax Records

The obligation for calculating any tax liability rests solely with you, the taxpayer, as does the responsibility for keeping adequate tax records.  Good records are a prerequisite for determining and accurately calculating your tax obligation and your records will support and provide documentation of this calculation if your tax return is called into question.  Typically the IRS has up to 3 years from the date a return is filed to either question it or ask for additional supporting documentation.   However if the IRS has reason to believe your income was grossly misrepresented they may go back even further, up to the prior 6 years.  There are some taxable events which are spread out over a period of time extending beyond a single tax year, for example real estate and other types of investments.  For taxable events such as these, you may want to maintain all records covering the period of time relating to the transaction and beyond. 

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The following are suggested time tables for retaining your tax records:

• Tax Returns – should be kept a minimum of 6 years.

• Income Records – should be kept a minimum of 3 years however 6 years would be preferable.

• Expense Records – should be held a minimum of 3 years with 6 years being preferable.

• Investment Records – should be maintained at least until the time of sale.

• Real Estate Records – should be maintained at least 7 years after the time of sale.

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It is important to note that each state has its own statute of limitations for state income tax audits and the individual state limit could exceed that of the federal limit.  Be sure you are aware of your own pertinent state(s) requirements for tax record retention and be sure to comply with it as well as the federal limit.

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