KEEPING OLD TAX RECORDS
How long should you keep your old tax records? Many people have tax records going back decades and there is nothing wrong with this. However, the Internal Revenue Service can audit you for any reason within three years of the filing of your tax return. After three years, in most instances, the year is considered "closed" and cannot be examined. If you have omitted 25% of your income from a tax return the Internal Revenue Service has six years to audit the return. Congress recently clarified that an understatement of income also includes an overstatement of expenses on your return for purposes of the 25%. Unless you are a business owner it would be very difficult for you to omit 25% of your income from your return as the Internal Revenue Service gets a copy of your W-2 from your employer and the basis of your securities sold from your broker. You would receive a notice from the Internal Revenue Service long before the three-year statute of limitations is up if you did not properly report these figures. Therefore for the vast majority of people you can get rid of all of your tax returns that are older than three years old. If you plan to dispose of you old tax records as a result of this tax minute, make sure you shred any old records to prevent identity theft.