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.

Tax preparation, defined simply, is the act of preparing and filing of tax returns for individuals and Corporations with State and Federal Government. Pertinent information, especially all liabilities, deductions and exemptions for taxation, is given by the taxpayer to a government tax collecting agency. As a rule, individuals and organizations want to pay their taxes on time to be free of any tax liability and penalties. Tax returns may be prepared by the taxpayer, with the help of a tax software, a CPA, or a tax processing firm.

Tax preparation firms draw on their knowledge of tax codes and laws to prepare their client’s tax returns, making sure clients pay no more than the necessary taxes. The work involves a substantial amount of research and attention to detail. Many accounting firms – and CPAs – carry out tax preparation outsourcing.

Outsourcing is the act of subcontracting a process or part of a process previously done within a company to a third-party. Many processes including accounting, bookkeeping and tax compliance are currently outsourced. Tax preparation outsourcing firms are commonly located offshore. Most outsourcing work is done by professionals in developing countries. These countries normally have vast highly qualified and trained labor.

Outsourcing tax preparation is a profitable option now. The client benefits from being spared the investment on recruiting, training and retaining in-house tax preparers. Sometimes, after great expenditure on recruitment and training a company soon finds that it can not subsidize the salaries and benefits required to keep the tax staff employed. Money saved by outsourcing tax returns can then be invested in core areas of the client’s business, thus increasing profitability.

Outsourcing tax returns also saves the time and effort of the company’s existing staff, thus allowing them to concentrate on core areas of the business. With tax processing subcontracted to a third-party, the client company can devote more time and effort on meeting its customers’ demands, resulting in enhanced profitability. Since tax processing firms specialize in the service and their reputation banks on timely and efficient service, the client company is assured of meeting tax deadlines. By outsourcing tax processing, one need never lose sleep over tax returns.

However, outsourcing tax preparation may not be so simple. There are a few outsourcing firms to choose online. A bit of scouting is needed to find the outsourcing firm best suited and beneficial to the client. Firstly, check for competence and reliability. Reputation and endorsements also help. Among online firms, look out for the security features that the firms have in place. Make certain that the security measures of the outsourcing company are stringent enough to protect its customer identity and data. Normally all mid-sized or large firms have several layers of security to ensure that your data is private and protected. In fact, in most cases the outsourcing firm has much more security than the outsourcer’s company itself.