Once April 15th has passed and you have filed your taxes, what should you do with your tax documents? How long do you need to hold onto that box of receipts that gets pulled out every year when you are having your taxes prepared?
According to the IRS, federal law requires all taxpayers to keep copies of tax returns and any supporting documents for a minimum of three years. This law is often referred to as the “three year law”, which leads many to believe that they can destroy their records after three years from filing. What many consumers don’t realize, however, is that they may need that information longer than the minimum amount of time that is required by law.
Colorado Springs tax planning experts recommend holding onto tax documents and receipts for longer than the required three years. In cases where the IRS believes that you have significantly underreported your income by 25% or more, or where they believe that there may be indication of fraud, you may be required to show the last six years of information in an audit.
Many taxpayers view an IRS audit as trouble. Fear of having to pay fees and fines for not having filed taxes correctly in previous filings can be extremely stressful for you and your business. The best way to handle the process is to make sure that you have all the records that you need to accurately illustrate your financial standing and to support your case when working with the IRS.
For business owners who work with Colorado Springs payroll services, keeping track of those records can be very helpful in case of an audit. Making sure that previous years’ tax returns are filed accurately and safely is a crucial part of managing your taxes responsibly. Be sure to keep copies of returns and any necessary documentation for at least six years if you think there could be a chance of an audit, or even just to be prepared in case of one. By being prepared , you’ll be well equipped to handle an audit should the IRS request one.
Business owners may face situations where they need the help of a Colorado Springs forensic accounting specialist to help uncover truth, form legal opinions and assist with investigating potential fraud or improper accounting practices. Should this be the case, having your tax records and documents available from previous years may help clarify matters more quickly.
Review the guidelines found in the Tax Center tab to determine how long to keep the various business documents that you acquire throughout the years.