Recordkeeping for Taxes
What to keep and how long to keep it
records should be kept on a year-round basis, not hastily assembled just for
your annual tax appointment. Without tax records, you can lose valuable deductions
by forgetting them on your tax return, or you may have unsubstantiated items
disallowed if you are audited.
Generally, returns can be audited for up to three years after filing. However,
the IRS may audit for up to six years if there is substantial unreported income.
The three and six year limits start with the filing of a tax return; if no return
is filed, the time limit never starts to run.
Which records are important?
- Records of income received.
- Expense items, especially work-related.
- Home improvements, sales, and refinances
(for homes with profit potential of $250,000 or more).
- Investment purchases and
- The documents for inherited property.
- Medical expenses.
- Charitable contributions (records vary with value of gift).
- Interest and taxes
- Records on nondeductible IRA contributions.
How long should records be kept?
Just how long you should keep records is partly a matter of
judgment and a combination of state and federal statutes of limitations. Federal
tax returns can be audited for up to three years after filing (six years if underreported
income is involved). It is a good idea to keep most records for six years after
the return filing date.
There are some records worth keeping permanently, partly due
to long-term needs and partly because they take up very little room. Consider
permanently retaining a copy of each year's tax return. Contracts, real estate
buy/sell records, and records of property improvements should be retained for
six years after the property is sold.
If you are in business, your record requirements are more extensive.
Please call us; we will be happy to assist you with a system of record retention
for your business.
Dean Miyamoto, CPA Inc.
1600 Kapiolani Blvd., Suite 1670
Honolulu, Hawaii 96814