Q: My understanding was that the IRS could file up to six years later. I have a small business and have been keeping my records six years. What is the current ruling for this?
A: Under section 6501(a) of the Internal Revenue Code, the IRS is required to assess tax within three years after a tax return is filed. Therefore, most people need only keep tax records for three years after filing a tax return, because that is the time period during which:
a) a taxpayer can amend a tax return to claim a credit or refund; or
b) the IRS can assess additional tax
As you are self-employed, however, there are a few circumstances in which you should keep records longer.
Keep employment-related tax records for at least 4 years.
Also, if you ever under-report income by 25% or more of the gross amount shown on your tax return, then you should keep records for at least six years after you file a return. In such as case, the IRS has six years to assess taxes – not just three.
What’s more you should keep tax records indefinitely if you file a fraudulent return, or if you do not file a return at all. But I assume that these last two scenarios don’t apply to you.
According to the IRS, “the exact length of time you should keep a document depends on the action, expense or event the document records.”
The IRS further offers this guidance:
1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 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; keep records for 6 years.
3. You file a fraudulent return; keep records indefinitely.
4. You do not file a return; keep records indefinitely.
5. You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
6. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
7. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
Lynnette Khalfani-Cox, The Money Coach®, is a personal finance expert, speaker, and author of 15 money-management books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom.
Lynnette has been seen on more than 1,000 TV segments nationwide, including television appearances on Oprah, Dr. Phil, The Dr. Oz Show, The Steve Harvey Show, Good Morning America, The TODAY Show and many more.
All information on this blog is for educational purposes only. Lynnette Khalfani-Cox, The Money Coach, is not a certified financial planner, registered investment adviser, or attorney. If you need specialty financial, investment or legal advice, please consult the appropriate professional. Advertising Disclosure: This site may accept advertising, affiliate payments or other forms of compensation from companies mentioned in articles. This compensation may impact how and where products and companies appear on this site. AskTheMoneyCoach™ and Lynnette Khalfani-Cox, The Money Coach® are trademarks of TheMoneyCoach.net, LLC.