Filing income tax returns can be a real headache, especially if your recordkeeping skills are not quite up to par. However, if you’ve been diligent about keeping up with important tax documents and records, filing your return won’t be such a monumental task. The Internal Revenue Service requires tax filers to keep the records supporting their income and deductions until the period of limitation ends for the return.
Period of Limitation
The IRS defines the period of imitation for a tax return as the time period in which the taxpayer can amend the return to claim a credit or a refund. This period also applies to the period in which the IRS can impose additional tax on the return. This period begins the year the tax return is filed.
The IRS advises taxpayers to keep copies of their tax returns and records supporting income and deductions for at least three years. Three years is also the period of limitation if a taxpayer owes additional taxes.
Tax filers who file for an additional credit or refund after filing their initial return are required to keep tax records for three years after the initial return was filed or two years after they paid the tax owed on the initial return. If a tax filer does not report income that he should have and that income is at least 25 percent of the gross income reported on the initial return, the IRS requires the tax filer to keep tax records for six years.
The IRS grants a seven-year period of limitation for tax filers who file a claim for financial losses due to worthless securities. The period of limitation is indefinite for taxpayers who do not file a return or who file a fraudulent return.
When it comes to disposing of property, tax filers are required to compute the gain or loss from the sale or disposition of the property on their tax returns. The IRS requires tax filers to retain records from the time of the taxable disposition until the period of limitation runs out.
The IRS also has guidelines for keeping records of property received in nontaxable transactions. According to the IRS, taxpayers must retain records of the old property (money or asset) that was traded for the new property and records of the disposition of the new property until the period of limitation ends.
After the Period of Limitation
The IRS recommends that tax filers retain copies of their filed income tax returns past the period of limitation in case they are needed for amended returns or to respond to an IRS inquiry. It is also a good idea to keep your tax records past the period of limitation in case they are needed for other purposes, such as insurance or creditor claims.
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