Simply Junior

Most tax deadlines are easy to remember like the filing deadline or the due date to pay estimated tax payments however, when it comes to how long to keep tax records, most people do not have a clue. So you want to know, how long to keep tax records?

The easy answer is until the statute of limitations expires for that tax return. Records that should be kept include receipts, canceled checks, and other documents needed to prove to the IRS your filing was legitimate! This is usually three years from the DUE DATE for the tax return or when the return was actually filed with the IRS or two years from the date the tax was actually paid to the IRS, whichever is LATER. This is generally accepted as the time period in which the IRS can question your tax return.

NB: If you do not file your taxes or file a fraudulent or false tax return there is no statue of limitations. This is what trips up a lot of people, when the IRS comes knocking after 5 years and all of the tax records have been discarded after 3 years. You MUST know, it is the IRS that will claim that a tax return was fraudulent or false. Not filing any taxes at all is self explanatory.

Some tax records should be kept indefinitely, like property tax records. These records will be required to prove to the IRS your gain or loss when you sell the property.

Statute of Limitation provisions differ, here are some you should keep in mind:

You should retain documents verifying the value of real estate or stock until you sell them and realize a gain or loss plus the three-year statute of limitations on the tax return filed after that sale with the IRS.

Keep indefinitely copies of your tax returns. Yes, there is the statute of limitations is 3 years but it will not apply if the IRS suspects it was fraud or filed falsely. Keep those tax returns. Something else to consider is that without your knowledge the IRS changes many returns. The original may be necessary if IRS records are magically different from what you filed.

Keep tax records that relate to any claim with the IRS for a tax refund or tax credit that was based on bad debts or losses on worthless securities for at least seven years. You may find you need these in the future.

Net operating loss (NOL) can be carried back 2 years and carried forward 20 years. It is very important for you to keep your tax records until all net operating losses are used to offset taxable income and the carry forward term expires. Add the 3 year statute of limitations on the tax returns filed with the IRS that used the carry forward.

Beware: If it is found by the IRS that you understated your gross income by 25% or more the statute of limitations will be doubled to 6 years. Take this advice, if there is anything EVER questioned on your tax return, keep the return and all supporting documentation indefinitely

Also, in a case where a fraudulent tax return has been filed, or no tax return has been filed with the IRS, the IRS can make this assessment at any time.

Finally: An employer must keep all employment tax records for a minimum of 4 years after the taxes are due the IRS or have been paid, which ever is later.

Every year, the IRS announces that it is holding unclaimed tax refunds. Taxpayers have a limited time to claim the $2 billion dollars the IRS is currently holding.

Three years is a magical number when it comes to tax returns. It refers to the statute of limitations on certain tax issues such as when an audit can occur, when refunds can be claimed and when amended tax returns can be filed. The IRS is currently holding $2 billion dollars in unclaimed tax refunds for the 2002 tax year and taxpayers must file their claims by April 17, 2006 or lose the refunds forever.

Approximately 1.7 million people are due refunds out of the $2 billion dollars currently held by the IRS. These people have refunds due because they failed to file tax returns for 2002. This occurred most likely because people felt they did not make enough money to warrant filing a tax return. By failing to file, however, they have left $570 on average with the IRS.

If a taxpayer fails to claim the tax refund by filing a tax return for 2002, the money will default to the federal government. Importantly, there is no penalty associated for filing late if a taxpayer is due a tax refund. This is common misconception among non-filers.

One group of taxpayers that almost always has a large percentage of non-filers is military personnel. Obviously, it is a bit hard to file from Afghanistan, but now is the time to do so for 2002. Members of the military that failed to file in 2002 are owed an average of $749 per taxpayer.

The IRS releases demographic on the areas in the United States where refunds are due. To this end, California and Texas are the states where the most individuals are due refunds while Idaho has only 6,200 people due a refund.

Nobody finds filing taxes an exciting prospect. The pain is much less, however, is you know you are due a refund. If you failed to file in 2002, you might be throwing away a nice little chunk of change.