How long should you retain your personal income tax records? You may have to produce those tax records if the IRS or a state taxing authority audits your return. In addition, lenders or other parties may require that you produce copies of your tax returns as a condition to lending money, approving a purchase, or otherwise doing business with you.
Keep returns indefinitely and the supporting records usually for six years. In general, the IRS can only assess tax for a year within three years after the return for that year was filed (or, if later, three years after the return was due). For example, if you filed your 2015 individual income tax return by its original due date of April 18, 2016, IRS will have until April 18, 2019, to assess a tax deficiency against you. If you file your return late, IRS generally will have three years from the date you filed the return to assess a deficiency.
However, the three-year rule isn’t ironclad. The assessment period is extended to six years if more than 25% of gross income is omitted from a return. In addition, where no return was filed for a tax year, IRS can assess tax at any time. If IRS claims that you never filed a return for a particular year, keeping a copy of the return will help you to prove that you did.
While it’s impossible to be completely sure that IRS won’t at some point seek to assess tax, retaining tax returns indefinitely and important records for six years after the return is filed should, as a practical matter, be adequate. If you file a return electronically be sure to retain a copy.
Records relating to property may have to be kept longer. The tax consequences of a transaction that occurs this year, such as a sale of property, may depend on events that happened years ago. Those records should be kept as long as you own the property and until at least six years after you file your return for the year of sale.
You may keep your records in electronic form instead of or in addition to keeping paper copies. The periods for which the records should be kept are the same as for paper records. If your tax records are stored on your computer’s hard drive, you should back it up to an external storage device or on paper.
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