How long do I need to keep certain tax records for the IRS?

Some tax related time frames, such as your tax return filing deadline or the due date to pay the IRS estimated tax payments, are clear-cut. But when it comes to tax records and how long to keep tax records, the answer is far from simple.
Tax records such as receipts, canceled checks, and other documents that prove to the IRS an item of income or a tax deduction appearing on your tax return should be kept until the statute of limitations expires for that tax return. Usually this is three years from the date the tax return was due or tax return was filed with the IRS, or two years from the date the tax was paid to the IRS, whichever is later. This is the time period in which the IRS can question your tax return - typically three years after it is filed. There is no statute of limitations when a tax return is false or fraudulent or when no tax return is filed with the IRS. You should keep some tax records indefinitely, such as tax records relating to property, since you may need those tax records to prove to the IRS the amount of gain or loss if the property is sold.
How long you should keep tax records depends primarily on various statute of limitations provisions. Exceptions are below:

• Retain documents verifying the basis of property (such as real estate or stock) until recognition of gain or loss from sale of the property plus the three-year statute of limitations on the tax return filed with the IRS reporting the sale.

• Keep copies of your tax returns filed with the IRS indefinitely.

• Retain tax records relating to a claim with the IRS for a tax refund or tax credit based on bad debts or losses on worthless securities for at least seven years.

• Because a net operating loss (NOL) can be carried back 5 years and carried forward 20 years, it is important to keep tax records until all net operating losses are used to offset taxable income and the carry forward term expires, plus the three-year statute of limitations on the tax returns filed with the IRS using the carry forward.

• The statute of limitations is extended to six years if the IRS finds that gross income on your tax return was understated by more than 25%.

• Further, in cases where a fraudulent tax return has been filed with the IRS, or no tax return has been filed with the IRS, assessment by the IRS may be made at any time.

If you are an employer, you must keep all your employment tax records for at least four years after the tax is due or paid to the IRS, whichever is later. People in business often have expenses for travel, entertainment, and gifts. The documentation you should keep for each of these expenses can be found in IRS tax
Publication 463, Travel, Entertainment, Gift and Car Expenses.

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