Know Your Tax Record Basics
A significant number of citizens have grown responsible and started filing their tax returns. But what bothers most to these responsible citizens is keeping their tax record safe. The most pertinent question that they ask themselves is: “What is my tax record and how long do I have to keep them with me?”
Your tax records are your tax returns and the set of documents that have been furnished along with your returns. The supporting documents that you need to keep are various receipts, your bank statements and 1099s, etc. If you ever have to face the auditing of your accounts, your tax record will be essential to protect you from the IRS.
Keeping the Tax Returns
A nasty audit can ruin you, particularly when you fail to keep your tax returns in place where you can get to them when asked to produce them by the auditor. Misplacing your tax returns can make you vulnerable to IRS. People who have a habit of doubting every good or bad circumstance might see a lost return as an attempt to hide tax fraud. But the fact is that millions of returns bombard the IRS over the course of three months and there is indeed a fair chance of returns being misplaces. So, it is always prudent to keep copies of your tax returns.
Now, have a look at the IRS e-file program. You may prefer to file your tax return electronically, but you need to be sure that you get copies of your return. The company filing your return is responsible for providing you with a paper copy of your tax return.
You need to keep your tax records safe for a minimum of six years. This period is counted from the date when your return was actually filed. In most cases, the IRS audits your accounts which are no further than three years old from your filing date. For instance, if you filed your tax return of 2005 on March 31, 2006, the IRS will initiate an audit by March 31, 2009. You need to keep in mind that in the case you filed an extension; the IRS waits three years from the date the return was filed.
However, there are some exceptions that prevail upon this time period. If you filed a tax return that kept many questions answered to the IRS, they are will not be satisfied by a simple three-year audit period. If more than 25% of your gross earnings are not reported adequately, the IRS will surely go back even further, up to an additional three years. So, a six year period is always wise to keep your tax record safe.
Maintaining Your Property Records
So, you own a property? You may need a filing cabinet to keep your many property related documents. A property kept for an extended duration requires maintaining various kinds of documents. For example, if you purchased a property in 2000 for $10 million and incurred expenses of $1, 00,000 in improvements; you will have to keep the purchase records, mortgage deeds as well as the receipts related to the improvements. In case you want to sell the home, these records will be required to ascertain the tax related consequences and the profit realized from the sale. When the IRS questions your reported profit, you will need to have your tax records handy to answer their queries. When you sell your property, you must keep all your tax records for six years.
When you get a Divorce
When you decide to divorce your spouse, you must keep copies of all of your tax records with your other financial documents. You need to keep copies of all documents and court orders pertaining to your divorce that have any mention of your property and finances. After a divorce, the tax implications can be shattering for some couples, if they fail to maintain their tax records. At times, you may have to ask for information from your ex-spouse. Keep all your tax records safe to avoid any future complications.
Nobody feels happy when required to show their tax records to the IRS. But if you ever have to ever face an audit, maintaining your tax records can often protect you from the negative consequences.Know Your Tax Record Basics by Steve