The Internal Revenue Service (IRS) in the United States mandates taxpayers to keep their tax records for 3 to 7 years, varying based on individual circumstances. These documents, supporting the data on your tax return, should be held until the associated limitations period expires. This rule ensures compliance with the Internal Revenue Code and aids in the proper administration of tax laws.

Period of Limitations that Apply to Tax Returns

The period of limitations refers to the timeframe within which you can modify your tax return to claim a refund or credit, or when the IRS can levy additional taxes.

  1. Three Years: The period of limitations is 3 years if situations (3) and (5) below do not apply to you.
  2. Three Years +: The period of limitations is  3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
  3. Six Years: The period of limitations is 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.
  4. Seven Years: The period of limitations is 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  5. Indefinitely: If you do not file a return or if you filed a fraudulent return, the period of limitations is  indefinitely.

It’s important to note that this is a general guideline, and specific circumstances may necessitate different retention periods. For any specific queries, consult with Gruber and Associates, P.A. directly.

Keeping Records

Keeping records is crucial for a number of reasons. 

  • They help in preparing tax returns and making computations to figure the tax correctly. 
  • In addition, they are essential for identifying sources of income and keeping track of deductible expenses. 
  • Records also help to keep track of property basis and to prepare financial statements. 
  • Lastly, these records are crucial in the event of an audit or resolution of potential tax disputes.

Various Types of Records

To effectively manage your financial and tax obligations, it is important to maintain various kinds of records. These records can be categorized into two types: basic records and specific records. 

Basic records encompass documents that verify your income and expenses, such as W-2 and 1099 forms, bank statements, sales slips, invoices, receipts, and cancelled checks. These records provide evidence of your income and substantiate the deductions you claim on your tax return.

Here’s a list of basic records: 

  • W-2 forms
  • 1099 forms
  • Bank statements
  • Sales slips
  • Invoices
  • Receipts
  • Cancelled checks

Specific records, on the other hand, pertain to certain items that require additional documentation beyond basic records. For example, if you receive or pay alimony, you should keep a copy of the written separation agreement or the divorce decree. For business use of your home, you should maintain records that demonstrate the portion of your home used for business and the related expenses. In case of casualty or theft losses, it is essential to have evidence that proves the occurrence of the loss and your ownership of the affected property.

Here’s a list of specific records:

  • Alimony documents
  • Business use of home records
  • Casualty or theft loss evidence
  • Child care expense records
  • Contributions to qualified organizations
  • Education expense documentation
  • Exemptions claimed for dependents
  • Employee business expense records
  • Energy incentive documentation
  • Gambling winnings and losses log
  • Health savings account (HSA) and medical savings account (MSA) records
  • Individual retirement arrangement (IRA) records
  • Medical and dental expense receipts
  • Mortgage interest statements
  • Moving expense records
  • Pension and annuity records
  • Tax payment documentation

Remember to also keep records of the following:

  • Form W-2
  • Form 1099-R
  • Mortgage statements
  • Tax assessments
  • Receipts showing general sales taxes paid

Please note that the list provided above is not exhaustive. While this list provides an overview of the kinds of records to keep, it is important to consult the official IRS website, guidelines, and publications for more detailed information regarding record retention requirements specific to your situation. For a comprehensive understanding of record retention requirements and consult with Gruber and Associates, P.A. 

Finding Help for a Comprehensive Record Retention 

Individual record retention needs may vary based on specific circumstances and applicable regulations. Seeking professional guidance will ensure that you meet the specific record retention requirements that apply to your situation.

A robust record retention practice is crucial in staying compliant with the tax laws and regulations, preventing unnecessary penalties and interest, and providing an accurate financial history of your personal and business transactions.

Whether it’s navigating the complexities of tax records or ensuring compliance with the IRS guidelines, Gruber and Associates, P.A. provides tailored solutions. For businesses and individuals in need of reliable record retention services, contact Gruber and Associates, P.A. in Fort Lauderdale today.