Tax Accounting - How long to keep your records

How long to keep Copies of your Tax Returns Most people are unsure about how long they should keep copies of their tax returns. Generally speaking, the IRS has a period of three years from the date you file your tax return to audit it. However, in certain situations such as failure to report portions of your gross income, this period can be extended by another three years. So actually you should keep copies of your income tax returns for a minimum of six years and longer if possible. You also need to keep all supporting documents such as 1099s, W2s, bank statements, canceled checks, bills and receipts. The most efficient way to do this is to put all paperwork for each year in a large envelope or box with the year clearly marked. This is also helpful in the event you need to look up an old receipt or check. One of the most common triggers for an IRS audit is failure to file an income tax return. If you keep copies of all your tax returns, this will be quickly resolved. Because of the millions of returns filed and processed every year, some get lost or misplaced in the shuffle. The post office does not like to admit it, but they do lose a certain percentage of mail every year. So just because you mailed it does not mean it ever gets to the IRS and even after it gets there, it can be misfiled and lost. In addition to records pertaining to your yearly income tax returns, you should also save originals or copies of employment contracts, bills of sale, financial documents such as notes and mortgages, divorce papers, court orders, birth and death certificates and other important records that may affect your taxes. If you own your own home or other property, it is important to keep all paperwork so that you can substantiate profit or loss when it comes time to sell. If you make substantial improvements to property, this will count towards your base price and can help lower your taxes. Keeping all copies of your tax returns and supporting documents in order will ensure you can find what you need in the unlucky event you should be audited.

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