For an income tax return, the period of limitations is three years. But the IRS says it’s wise to keep your tax returns even longer. For example, if the IRS audits you, you’ll have the documents you need to protect yourself from an audit - How long do I have to my keep tax returns?. The statute of limitations starts running on the later of the due date for your tax return or the date on which you file your taxes.
For example, if you lent a friend $10,000 under a promissory note and the friend went bankrupt, keep records to prove that it was a legitimate debt discharged in bankruptcy that was never paid. Another special tax item is employment taxes. Keep records for employment taxes for four years from the later of the date the tax is due or the date you pay the tax.
For example, if you bought a car in 2010, use it as part of your business and then sell it in 2020, you should keep all of those car-related tax records until the statute of limitations expires for your 2020 tax return. In addition, keep your old property records until the statute runs out on the tax year you dispose of the new property if you exchange the property for another property to which you transfer your cost basis.
Your basis in the new property is dependent on your basis in the old rental property. As a result, keep the old rental property records until the statute runs on the tax year that you sell the replacement property. Other Circumstances for Extended Statutes of Limitations In some circumstances, the statute of limitations is longer than three years.
After the IRS determines that you owe taxes, it has 10 years to collect your debt. State Tax Returns Many states follow the same three-year and six-year timeframe as the IRS, but some states give themselves additional time to audit you. These rules can get complicated. For example, California has a four-year statute of limitation on audits and requires you to file an amended state return if the IRS adjusts what you owe.
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Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can. This article was fact-checked by our editors and Jennifer Samuel, senior product specialist for Credit Karma Tax. It has been updated for the 2020 tax year.
What do you do with all the tax forms — whether paper or digital — when tax season ends? Holding onto those forms probably seems like a smart idea to a lot of people — a 2020 IRS survey says that 62% of taxpayers are so fearful of an audit that they wouldn’t even think of cheating on their taxes.
In some situations, you may even want to keep some forms forever. Credit Karma Tax® — Always free First, why do you have to keep tax records at all? Once tax season is over, you might not even want to think about taxes — let alone deal with tax forms — for another year.
They could have a question about information in your return. Or, you could discover you made a mistake on your return and need to file an amendment. You might even need information from a past year’s return in order to file this year’s return. Having access to your tax documents makes it easier to deal with these situations.
White says. “But, if you’re audited, your tax records could keep your feet out of the fire.” For most situations, the IRS recommends you keep tax records for three years after filing. The IRS recommends this time frame because that’s the amount of time you have to amend your return to claim additional eligible credits or refunds — and it’s typically the amount of time the IRS has to audit you to try to collect any additional taxes owed.
Credit Karma Tax® — Always free While the IRS suggests most taxpayers only need to keep basic records for three years, there’s an argument for holding onto these documents for at least seven years — a year longer than the six-year statute of limitations in cases where income was substantially underreported.
It just means that your tax situation might raise a few red flags that require the IRS to take a closer look.” You should also keep copies of your tax returns forever so you can prove you filed your taxes if the IRS says you didn’t, as there’s no time limit on the IRS bringing a case for failure to file. How Long to Keep Records for Business Taxes.