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RECORDS RETENTION
How long should records be kept? Records must be kept at least until the statute of limitations for a tax return has expired. This criteria may vary depending on circumstances but here are some general guidelines.
If the taxpayer then the period is:
- Owes additional tax. Three years.
- Omits reportable income in excess of 25% of gross income that should have been reported on the return. Six years.
- Files a fraudulent return. Unlimited.
- Does not file a return. Unlimited.
- Files a claim for credit or refund after the original return has been filed. Later of three years, or two years after tax was paid.
- Files a claim for loss from worthless securities or a bad debt deduction. Seven years.
- Employment tax records. Employment tax records should be kept for at least four years after the date the tax becomes due or is paid, whichever is later.
- Asset records. Asset records include acquisition cost, date, and any other information affecting basis. Asset records are used to calculate depreciation, amortization, and depletion deductions, and basis for gain or loss upon sale or other disposition. Asset records should be kept until the period of limitations expires for the year in which the asset is disposed of in a taxable disposition.
- Computerized records. Business books and records maintained on a computer must provide enough detail to identify underlying source documents and substantiate entries on tax and information returns. (Rev. Proc. 98-25)
- If net operating loss or capital loss carryforwards exist. Retain original documents that support these losses in the original year claimed until the three years after the loss is utilized on subsequent return.