A question we often get from a client is how long should you keep your tax returns and other financial records? A lot of people think once you file your federal tax return you can throw all your tax documents away. This, unfortunately, is not true. Taxpayers need to keep their financial documents for at least 3 years after filing their tax returns. Even that answer isn’t completely correct as there are certain situations where you will need to keep your documents longer.
The three-year rule comes from the fact the IRS has up to three years after you file your tax return to audit you and assess additional taxes. That is also the time limit for taxpayers to file an amended tax return. The three-year timeline begins once you file your federal return. Once you file a return, keep a copy of the return. If you file online, keep the email confirmation you receive after you file the federal return. If you mail it, mail it certified so you get a signed certified mail receipt. This proves that you mailed the return on time and that the IRS received it. The IRS can lose or misplace returns, so it’s important to always keep proof that you filed. If you can prove that you filed your return, then the statute of limitations for an audit is set.
There are exceptions to the three-year rule. For instances, the IRS can go back six years when more than 25% of your income was omitted from your tax return. If you don’t claim the correct income on your tax return, the IRS may go back farther than three years to see if you’ve been consistently withholding income. Another exception to the three-year rule deals with fraudulent tax returns. If you file a fraudulent return or file a return that contains false information, there is no statute of limitations. That means if the IRS proves you filed a fraudulent tax return, they can go farther back than just three years.
The three-year statute of limitations applies when you file. If you never file a tax return, there is no statute of limitations. That’s why it’s important to keep records of your tax returns that are filed. If you have proof that you filed the return, then the statute of limitations is set, with the exception of the withheld income and fraudulent returns.
If you aren’t sure if the exceptions apply to you, then it’s best to keep all your records. You can keep them digitally on a flash drive or a drive or folder on your computer or you can keep physical copies in a folder at home or at your work. If you need help filing current or back tax returns, Polston Tax can help! Our team of tax accountants and tax attorneys can help you file your returns correctly and help you take advantage of tax deductions you might not know about! Give us a call at 844-841-9857 or click below to schedule your free consultation!