As tax season approaches, many people begin to wonder how long they should keep their tax information. This is an important question, as keeping records for too short a period can lead to trouble with the IRS, while keeping them for too long can lead to clutter and confusion. In this article, we’ll provide the ultimate guide to help answer this question once and for all.
The IRS generally recommends that taxpayers keep tax records for at least three years from the date they were filed or two years from the date they were paid, whichever is later. This means that if you file your taxes on April 15th, 2021 and receive your refund on May 1st, 2021, you should keep these records until April 15th, 2024.
However, there are some exceptions to this rule. If you file a fraudulent return or fail to file a return altogether, you should keep your tax records indefinitely. Additionally, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep your records for seven years.
It’s important to keep in mind that state tax agencies may have different requirements for record-keeping, so it’s always best to check with your state’s tax authority to make sure you’re in compliance.
So why is it important to keep tax records for the recommended period? In the event of an audit, the IRS will generally request that you provide documentation to support your income, deductions, and credits claimed on your return. If you can’t provide this documentation, you could be subject to penalties and interest charges on any taxes owed.
But what about keeping records for longer periods than recommended? While there’s no harm in keeping your tax records for longer if you have the space to store them, it’s important to periodically review and purge old records to avoid clutter and confusion.
One important consideration when deciding how long to keep tax records is the possibility of future litigation. If you’re involved in a lawsuit, your tax records could be requested as part of the discovery process. In this case, it’s best to consult with an attorney to determine how long you should keep your records.
In conclusion, the ultimate guide to how long you should keep tax information is to keep records for at least three years from the date they were filed or two years from the date they were paid, whichever is later. Exceptions include fraudulent returns and bad debt deductions, which require records to be kept indefinitely. Remember to periodically review and purge old records to avoid clutter, and consult with an attorney if you’re involved in a lawsuit to determine how long you should keep your records. By following these guidelines, you’ll ensure that you’re in compliance with IRS regulations and prepared in the event of an audit.
