If the only things certain in life are death and taxes, you can't avoid doing your tax return, which can result in a lot of paperwork piling up. Tax records should be kept until the period of limitations runs out, which varies depending on your circumstances.
Why Should You Keep a Copy of Your Tax Return?
It's good sense to keep a copy of your tax return and all documents that support entries on your return (income, deductions, credit, etc.). This helps you make amendments to your return (for example, to claim a credit or refund) and prepare future tax returns.
If the IRS audits your tax return, you must provide records and supporting documents to prove any income, deductions or credits claimed on the return. Generally, the IRS has three years from the due date to perform an audit.
If you fail to report more than 25 percent of your gross annual income, the IRS requires you to produce tax records and financial documents for the six years before the due date. If you are accused of committing tax fraud, there is no statute of limitations for performing an audit.
How Long Do You Need to Keep Tax Records for a Small Business?
The length of time you should keep tax records for a small business depends on the period of limitations. This is the period of time during which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.
As a general rule, keep income tax returns for small businesses for three years from the due date. If you file a claim for a credit or refund after you file the return, keep tax records for three years from the due date or two years from the date you paid, whichever is later. If you file a claim for a loss from worthless securities or bad debt deduction, keep tax records for seven years. If you fail to report more than 25 percent of your gross annual income, keep records for six years. If you do not file a return or file a fraudulent return, keep records indefinitely.
A small business should also keep employment records for at least four years after the date that the tax becomes due or is paid, whichever is later.
Read More: How Long Do You Keep Business Tax Records?
How Long Do You Keep Records for the Deceased?
The same statute of limitations period applies if you file a tax return on behalf of a deceased person. The tax return due date is the same for everyone, living or deceased. So, keep tax returns and records, plus supporting documents and statements, for at least three years after the tax return due date for a deceased person. To be on the safe side, keep records for the deceased for six years after the tax return due date.
Keep tax records until the period of limitations (a minimum of three years) for that tax return has expired.