Every year, taxpayers go through the ritual of gathering the information needed to file their federal income tax return. Once completed, those records are often filed with those of prior years.
In this article, we're going to discuss the long-term recordkeeping requirements for individual taxpayers. As part of that discussion, we'll not only talk about the records the Internal Revenue Service (IRS) expects taxpayers to retain, but also how many years they need to maintain those records before disposing of them.
Filing a tax return is a paperwork intensive effort, the records needed to complete a federal income tax return include:
Records and receipts for any other income or expense that might affect the taxpayer's federal income tax liability.
If an individual is eligible to deduct travel, entertainment, transportation, or charitable gifts, they're going to need to provide proof of such expenses. In this case, adequate records are considered written evidence documenting these payments. Examples of acceptable written evidence include receipts, canceled checks, bills, or paid invoices that support all claims.
Generally, individuals should create a complete written record of all expenses claimed on an income tax return using the following four dimensions:
Individuals wishing to claim charitable gifts of money now have three options available to prove they made this donation:
In the case of charitable donations, the IRS requirements no longer allow written logs, diaries, or notes made by the taxpayer at the time of donation. These types of records are no longer considered sufficient proof of the donation's value.
There are a good number of reasons to maintain accurate tax records. They can help identify the exact source of all income, they can help taxpayers track their deductible expenses, and they can aid in the process of preparing a tax return. This information is also invaluable when faced with an audit of a return.
The basic kinds of records to maintain include:
When it comes to providing proof of payments, it's important to maintain for each type of payment:
Taxpayers should also keep records associated with: alimony paid, casualty and theft losses, child care expenses, charitable contributions, education expenses, un-reimbursed business expenses, gambling winnings or losses, retirement account contributions, mortgage interest paid, moving expenses, pensions / annuity payments, taxes paid, and tips received.
If the above list looks familiar, that's because these are the categories of deductions, as well as sources of income, that are accounted for when completing a tax return.
As stated at the beginning of this article, taxpayers often find themselves asking a very reasonable question: How long do I need to keep my tax records? The answer to this question is relatively straightforward. The Internal Revenue Code requires taxpayers to keep their records for as long as they might be needed to prove a claim on a tax return.
Essentially, this requirement translates into a "period of limitation," that applies specifically to tax returns. The table below outlines the periods of limitations that apply to individuals. The timelines mentioned below start with the return's filing deadline. If a tax return was filed before its due date, the timeline still begins on the filing deadline.
|Tax Condition||Period of Limitation|
|Income is not reported and it is more than 25% of the gross income shown on the return||Six years|
|A fraudulent return is filed||No limit|
|A tax return is not filed||No limit|
|A claim is filed for a credit or refund after the return was filed||The longer of 3 years or 2 years after the tax was paid|
|A claim is filed for a worthless security||Seven years|
|All other tax conditions||Three years|
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