A reader's simple question has no simple answer.
Question: How long should you keep receipts? I am not sure if I should keep receipts for auditing or because I may need to amend a return. Is there a rule of thumb in taxes in regards to this?
— Michelle in California
Jacob Dayan answers…
When it comes to taxes, sometimes the simplest questions have the most complicated answers. In your case, Michelle, it’s more vague than complicated. That’s because there’s no one right answer to how long you should keep receipts — because the time frame really depends on the type of income or expense the receipts support.
Let me take a stab at breaking this down so you have useful information to make an informed decision…
A few years — or forever
According to IRS Publication 1035 (Rev. 9-2017) — yes, that’s the intimidating title — “the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years.”
OK, so that’s one answer: No more than six years.
But then there’s Publication 583 (January 2015), which instructs taxpayers to keep records for “as long as they may be needed for the administration of any provision of the Internal Revenue Code.” What does that mean? It continues:
Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax.
As you can see, the length of time depends on exactly what the receipt is for.
What you should do anyway
Here’s what I recommend regardless.
First, keep good records and receipts to protect yourself in the event of an audit. The IRS may audit personal income tax returns going back three years from the due date, or two years from the time the tax was paid (whichever is later).
If you’re not sure if you owe tax debt, check out Debt.com’s page What Is Tax Debt?
In situations where a tax return was never filed, or a fraudulent return was filed, you must keep receipts forever. If a return did not include all income, and the omission is greater than 25 percent of the income claimed on the original filing, records must be kept for six years.
Finally, employment tax records must be kept for four years after the due date or payment date — again whichever is later. If you own a small business, or if you’re self-employed, I recommend looking into a bookkeeping/account solution. My team offers free consultations, and we can help you understand all of your options. You can reach us through Debt.com. Hope this helped.
If you need help to settle back tax issues with the IRS, Debt.com can connect you with an accredited tax resolution specialist.
Published by Debt.com, LLC