Spring is a great time to clean out that growing mountain of financial papers and tax documents that clutters your home and office. Here’s what you need to keep and what you can throw out without fearing the wrath of the IRS.
Let’s start with your “safety zone,” the IRS statute of limitations. This limits the number of years during which the IRS can audit your tax returns. Once that period has expired, the IRS is legally prohibited from even asking you questions about those returns.
The concept behind it is that after a period of years, records are lost or misplaced and memory isn’t as accurate as we would hope. There’s a need for finality. Once the statute of limitations has expired, the IRS can’t go after you for additional taxes, but you can’t go after the IRS for additional refunds, either.
The Three-Year Rule
For assessment of additional taxes, the statute of limitation runs generally three years from the date you file your return. If you’re looking for an additional refund, the limitations period is generally the later of three years from the date you filed the original return or two years from the date you paid the tax. There are some exceptions:
Assuming that you’ve filed on time and paid what you should, you only have to keep your tax records for three years, but some records have to be kept longer than that.
Remember, the three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old.
Here’s a checklist of the documents you should hold on to:
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Copyright All rights Reserved. Financial Dream Team, like all providers of personal financial services is required by law to inform their clients of their policies regarding privacy of client information. The information in this material is not intended as tax or legal advice. Financial Dream Team, USA, LLC is a registered business in Califronia. Provided content is for informational purposes only.