We All Should Have Boxes In Our Garage, Attic, Storage, Etc. Marked IRS 2011, 2014, Etc.
These hold the documents used to complete our Tax Returns both of IRS and our beloved State.
Every year that we put up another year, we look at the older years and try to determine which ones should be shredded.
Who do we need to please?
Well, the IRS is most important, because the chance of an IRS audit is so much more likely to happen, and if you can please IRS, you can please Sacramento.
There Is A Small Booklet That Has Some Information On This
There is one small section, “How Long to Keep Records”. The answer as in most legal documents, “It depends”. Yes, there are several different rules.
To quote this section:
“You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code.”
Generally, this means you keep records that support an item of income or deduction on a return until the period of limitations for that return runs out”. English Translations: Who knows?
The period of limitations is the period of time in which you can amend your return or the IRS can assess more tax.
The “normal” situation is 3 years. But if you do not report at least 75% of your income, the time is 6 years. If you do not file or file a fraudulent return, there is no limit at all, forever.
Employment tax information must be kept for 4 years, and they recommend that you consider that insurance companies or creditors might want older records.
One Very Interesting Paragraph:
I will quote it.
“Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition.”
The best way to illustrate is a situation that I encountered.
I went to the big, ugly building in Laguna Niguel to discuss a problem. Of course, this was the year that I had done a 1031 Exchange of a Property that I had owned for over 30 years.
The auditor wanted to know what information we used to set our depreciation schedule and if I could furnish the Escrow Statement of the Purchase, from-oh-so many years ago.
Where in the world would that be? I sure didn’t know.
And to complicate the audit even more, it had been purchased on an Equity Share with my son.
However, my daughter, for some reason, had kept a copy of it and actually found it.
So for a 1031 Exchange, how long should I have kept the records? Over 30 years.
Now, you be careful out there.
One good thing. The IRS officer was friendly, competent, and helpful. How about that?