Keeping tax records can be a real challenge at times, but our clients who underwent the torment of a tax audit will tell you that they are now almost perfect with their recordkeeping.
Our tax preparation clients often wonder how long they should keep their records after we return their hard copies upon filing their tax return.
With modern advances in scanning technology, our answer is almost always the same: Keep the records forever! You can use a desktop scanner, like the excellent Fujitsu iX1600, to scan your records to a secure cloud storage service like Google Drive, which has 15GB of free storage, more than enough for years of tax records.
We also understand that some folks just want to hold on to the paper copy so will begin by looking at the statute of limitations, or the amount of time the IRS can audit your tax return, before it expires.
Table of Contents
Statute of Limitations for Tax Audits
The IRS recommends that you hold on to your tax records for 3 years. This general requirement applies to:
- W-2 forms
- 1099 forms
- 1098 forms
- Retirement contributions
- Charitable contributions
- Eligible expenses for withdrawals of health savings accounts or 529 college savings plans
However, there are a few caveats to consider as per the IRS:
- Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
- Keep records indefinitely if you do not file a return.
- Keep records indefinitely if you file a fraudulent return.
- Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
State Audit Holding Requirements
Don’t forget that your state can audit your tax records as well. States typically follow the lead of the IRS for recordkeeping requirements, like Florida, with its audit statute of limitations set at 3 years. However, it’s best to check with your state as some states like California have their statute expire at 4 years.
Facing a Tax Audit?
Tax audit representation, also called tax audit defense, is a service in which Tax Shark represents a client before the IRS or other tax authority. We work with sole proprietors and business owners to present business financials in proper form to the tax authority as well as negotiate the tax liability on your behalf.
