Records Retention

What to Keep and How Long. Tax records should be kept on a year-round basis, not hastily assembled just for your
annual tax appointment. Without tax records, you can lose valuable deductions by forgetting them on your tax
return, or you may have unsubstantiated items disallowed if you are audited. Generally, returns can be audited for
up to three years after filing. However, the IRS may audit for up to six years if there is substantial unreported
income.
Which records are important?
• Records of income received
• Expense items, especially work-related
• Home improvements, sales, and refinances
• Investment purchases and sales information
• The documents for inherited property
• Medical expenses
• Charitable contributions (records vary with value of gift)
• Interest and taxes paid
• Records on nondeductible IRA contributions
• How long should records be kept?
Just how long you should keep records is partly a matter of judgment and a combination of state and federal
statutes of limitations. Federal tax returns can be audited for up to three years after filing (six years if
underreported income is involved). It is a good idea to keep most records for six years after the return filing
date. There are some records worth keeping permanently, partly due to long-term needs and partly because they
take up very little room. Consider permanently retaining a copy of each year's tax return. Contracts, real
estate buy/sell records, and records of property improvements should be retained for seven years after the
property is sold. If you are in business, your record requirements are more extensive.
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