| Many taxpayers are confused about how long | | | | may not save you. |
| they should keeptax records. The term "tax | | | | Failure to report more than 25% of your gross |
| records" refers to your taxreturns and the | | | | income givesthe IRS an additional three years to |
| documents that support the information inthe | | | | pursue you. Using theprevious example, the IRS |
| returns. These documents can include receipts, | | | | would have until April 15, 2007 toaudit your 2000 |
| bankstatements, 1099s, etc. If you are one of | | | | tax return. |
| the unlucky few tobe audited, these records will | | | | Property Records - Get A Filing Cabinet |
| be vital to fending off the | | | | You may need to get a filing cabinet if you hold |
| IRS. | | | | propertyfor an extended period of time. For |
| Tax Returns | | | | example, assume that youpurchased a home in |
| To protect yourself from a nasty audit, you | | | | 1980 for $100,000 and made $50,000 |
| should keep allof your tax returns indefinitely. The | | | | inimprovements over the years. You need to |
| IRS has been known tolose or misplace tax | | | | keep the purchaserecords, mortgage statements |
| returns. While conspiracy advocatesargue that this | | | | and receipts that relate to theimprovements. |
| is evidence of a nefarious scheme, thesimple fact | | | | When you sell the home, you will need therecords |
| is that the IRS receives millions of returnsover a | | | | to determine the tax consequences of the sale, |
| three-month period and lost returns are inevitable. | | | | towit, your basis (original cost plus improvements) |
| So how do you protect yourself? You keep | | | | andprofit. If the IRS decides to take a closer look |
| copies of everysingle tax return. | | | | at thereported profit, you will need to provide |
| A quick word on the IRS e-file program. If you | | | | your tax recordsto support your claims. Once you |
| file yourreturns electronically, make sure you get | | | | actually sell the property,it is recommended that |
| copies from thecompany that filed your return. All | | | | you keep all of the tax records foran additional |
| such entities arerequired by law to provide you | | | | six years. |
| with paper copies. | | | | Divorce |
| Records Supporting Tax Returns | | | | Make sure you keep copies of all of your |
| You should keep supporting tax records for a | | | | financialdocuments, tax returns and supporting |
| period of sixyears from the date the returns | | | | documents if you getdivorced. You should also |
| were actually filed. Ingeneral the IRS only has | | | | keep copies of all divorceagreements and court |
| three years to audit you from thefiling date. For | | | | orders that cover property andfinancial issues. |
| example, if you filed your 2000 tax returnon April | | | | When couples divorce, the tax and |
| 15, 2001, the IRS would have to start an audit by | | | | creditconsequences can be nightmarish. If you |
| April 15, 2004. Keep in mind that if you filed an | | | | don't keep records,you will have to ask your |
| extension,the IRS will have three years from the | | | | ex-spouse for them. Get therecords now to |
| date you submittedthe return. As is always case | | | | avoid doubling your misery! |
| with taxes, there areexceptions to this general | | | | Hopefully, you will never need to show your tax |
| time period. | | | | records tothe IRS. If you are one of the unlucky |
| If your tax return looks like the great American | | | | few that is audited,your tax records should keep |
| novel, therunning of the three-year audit period | | | | your feet out of the fire. |