Many taxpayers are confused about how long they should keep

tax records. The term "tax records" refers to your tax

returns and the documents that support the information in

the returns. These documents can include receipts, bank

statements, 1099s, etc. If you are one of the unlucky few to

be audited, these records will be vital to fending off the

IRS. Tax ReturnsTo protect yourself from a nasty audit, you should keep all

of your tax returns indefinitely. The IRS has been known to

lose or misplace tax returns. While conspiracy advocates

argue that this is evidence of a nefarious scheme, the

simple fact is that the IRS receives millions of returns

over a three-month period and lost returns are inevitable.

So how do you protect yourself? You keep copies of every

single tax return. A quick word on the IRS e-file program. If you file your

returns electronically, make sure you get copies from the

company that filed your return. All such entities are

required by law to provide you with paper copies. Records Supporting Tax ReturnsYou should keep supporting tax records for a period of six

years from the date the returns were actually filed. In

general the IRS only has three years to audit you from the

filing date. For example, if you filed your 2000 tax return

on April 15, 2001, the IRS would have to start an audit by

April 15, 2004. Keep in mind that if you filed an extension,

the IRS will have three years from the date you submitted

the return. As is always case with taxes, there are

exceptions to this general time period. If your tax return looks like the great American novel, the

running of the three-year audit period may not save you.

Failure to report more than 25% of your gross income gives

the IRS an additional three years to pursue you. Using the

previous example, the IRS would have until April 15, 2007 to

audit your 2000 tax return. Property Records - Get A Filing CabinetYou may need to get a filing cabinet if you hold property

for an extended period of time. For example, assume that you

purchased a home in 1980 for $100,000 and made $50,000 in

improvements over the years. You need to keep the purchase

records, mortgage statements and receipts that relate to the

improvements. When you sell the home, you will need the

records to determine the tax consequences of the sale, to

wit, your basis (original cost plus improvements) and

profit. If the IRS decides to take a closer look at the

reported profit, you will need to provide your tax records

to support your claims. Once you actually sell the property,

it is recommended that you keep all of the tax records for

an additional six years. DivorceMake sure you keep copies of all of your financial

documents, tax returns and supporting documents if you get

divorced. You should also keep copies of all divorce

agreements and court orders that cover property and

financial issues. When couples divorce, the tax and credit

consequences can be nightmarish. If you don? keep records,

you will have to ask your ex-spouse for them. Get the

records now to avoid doubling your misery!Hopefully, you will never need to show your tax records to

the IRS. If you are one of the unlucky few that is audited,

your tax records should keep your feet out of the fire. Richard Chapo is CEO of http://www. businesstaxrecovery. com -

Obtaining tax refunds for businesses by finding overlooked

tax deductions and credits through a free tax return

review.

Author:
Richard Chapo