Many people either assume that they do not need to keep copies of their documents at For more information all since they were filed with the IRS or that they need to hang onto their taxes for seven to 10 years or more. However, the primary reason to store your filed IRS forms is to protect you if you get audited. Since your records provide a thorough history of your finances, and the U.S. tax system is so complex, you will want to be sure that you are remaining in compliance with state and federal financial contribution laws.
It may be in your best interest to thoroughly organize your docs and keep them stored safely for the recommended amount of time based on the specific type of tax papers. Some of the top benefits of keeping copies of your papers include:
Being able to verify that you are entitled to the credits and deductions you claimed on your taxes
Having verifiable proof that you filed your required paperwork and complied with your financial obligations
Being able to show a record of your earnings through 1099s and W-2s
Being able to secure lines of credit or loans
Protecting yourself if you become the object of an IRS audit
Availability for estate planning and inheritance purposes
Proof of eligibility for a credit or refund
These are only a few of the advantages of keeping your records readily available for several years after the filing date. Since there are no disadvantages, there is no reason not to save them to protect yourself from future potential liability issues.
Exceptions to the tax records rule
There are several exceptions to the statute of limitations for IRS audits. Just because three years have passed does not mean the IRS will not audit you. If you do not file your returns at all, there is no time limit for legal action. There is no statute of limitations on fraud either.
If the IRS believes you understated your gross income by 25% or higher, the statute of limitations for an audit is six years, according to the IRS publication under IRS Code 25.6.1. But these exceptions do not only apply to IRS audits alone.
For instance, if you learn that you can claim deductions for worthless securities or outstanding debts, you may have up to seven years to amend your returns and claim the bad debt deduction, according to the IRS. Form 8582 IRS instructions also state that carryovers should be saved until the deductions are no longer active, plus at least seven to 10 years. This might include federal disaster casualty losses or charitable deduction carryovers.
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