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Accounting and Tax Center, Inc.
P.O. Box 20683     Roanoke, Virginia 24018     (540) 774-7400
 

Starting a Business and Keeping Records

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How Long to Keep Records


You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. 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. Table 3 on page 15 contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

Tip. Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you later file an amended return.

Employment taxes. If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later.

Assets. Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property.

Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.

Records for non-tax purposes. When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.

Table 3. Period of Limitations

If... Then the period of limitations is:
1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you. 3 years
2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return. 6 years
3. You file a fraudulent income tax return. No limit
4. You do not file a return. No limit
5. You file a claim for credit or refund after you file your return. Later of: 3 years, or 2 years after tax was paid.
6. Your claim is due to a bad debt deduction. 7 years
7. Your claim is due to a loss from worthless securities. 7 years

Generally, at this point I suggest if your records are not too voluminous you keep them forever.


Tax laws are subject to change at any time. Please contact us for the latest information.

Please Note: This information is provided to you by Accounting and Tax Center, Inc., for use as general guidance, and is not rendering specific legal, tax, or accounting advice. Only a qualified tax professional with all the facts at his or her disposal can determine the appropriateness of the application of any law to a given set of facts.

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