ENID, Okla. —
Often we ask how long should we keep our tax records, but seldom do we ask what type of records should be kept.
Most individuals and businesses keep income and expense information in some form of a record-keeping system. The income and expense entries usually are tied to a supporting document such as a bill or receipt, which are kept as well. Over time the amount of information kept becomes quite large and hard to manage.
Thus, the question arises as to how long this information needs to be kept.
The following list of documents support income received. These include, but are not limited to, invoices provided to customers, deposit slips, receipt books, credit card sales slips, and IRS Forms 1099-MISC, 1099-INT and 1099-DIV for items received.
There also are a variety of documents that support expense transactions as well. These include invoices received from suppliers, canceled checks, cash register receipts, account statements, credit card charge slips, real estate closing statements, and IRS Forms 1099-MISC and 1099-INT issued by the business. A proof of a payment made, such as a canceled check, is not sufficient proof for a deduction. The invoice or cash register receipt also is needed to document what was purchased.
Records must be retained for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Some records should be kept for as long as the business is in operation. Other records may not need to be kept as long.
Property records, which are required to determine the basis of the property to calculate gain or loss when an asset is sold, depreciation or amortization, must be kept until the property is disposed of plus a period of time as described in the table included at the end of this article.
Income, deduction and credit information that appear on a tax return should be kept until the statute of limitations expires for that tax return. In general, tax must be assessed within three years of the date when the return was filed or within two years after the tax payment is made whichever of these two dates is later. This same rule applies to a claim for a tax refund or credit.
The following table provides a basis for determining how long to keep tax information.
If the taxpayer:
• Owes additional tax and 2, 3, and 4 (below) do not apply, the period is three years.
• Does not report income that should have been and it is more than 25 percent of the gross income shown on the return, the period is six years.
• Files a fraudulent return, there is no limit.
• Does not file a return, there is no limit.
• Files a claim for credit or refund after filing the return, the period is the later of three years or two years after the tax was paid.
• Files a claim for a loss from worthless securities, the limit is seven years.
• Has employment records, the limit is four after the tax becomes due or is paid.
For additional and more detailed information concerning what records to keep and for how long, refer to the following IRS publications, which are available on the IRS website at http://www.irs.gov. Also visit with your tax adviser, who can help you determine what information is important to keep in your files.
• IRS Pub. 15, Circular E, Employer’s Tax Guide.
• IRS Pub. 225, Farmer’s Tax Guide.
• IRS Pub. 334, Tax Guide for Small Business (For individuals who use Schedule C or C-EZ).
• IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.
• IRS Pub. 535, Business Expenses.
• IRS Pub. 538, Accounting Periods and Methods.
• IRS Pub. 583, Starting a Business and Keeping Records.
Hobbs is Oklahoma Cooperative Extension Service assistant extension specialist.