How Long Do We Keep Receipts for the IRS?
Keeping meticulous tax receipts can mean the difference between enduring an excruciating audit and getting back the refund the government owes you. Although, the IRS does not specifically address how long you should maintain receipts, it does provide enough information to make an informed decision. All taxpayers should know the timeframe during which they should maintain receipts as well as the tax law behind these guidelines.
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Significance
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All records that directly relate to, or substantiate items listed on your income tax return are tax records. Prior year tax returns are part of this class of information, as are bank and credit card statements, receipts, canceled checks, income statements, and insurance records. The best way to define tax receipts are those that support entries on your return or reflect entries listed on past returns.
Statute of Limitations
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The most important thing to consider when deciding whether to shred or maintain your tax receipts is whether the statute of limitations for that return has expired for the item the receipt substantiates. In most circumstances, the IRS has three years from the date you filed the return to assess additional tax. This statute increases to six years for taxpayers who underreport 25 percent or more of their income. There is no statute for taxpayers who submit fraudulent returns. The statute of limitations for the collection of tax is 10 years.
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Considerations
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In addition to statute issues, it is beneficial to maintain tax receipts in the event you decide to file an amended return. This way, you have previous tax receipts readily available. Additionally, there are circumstances that involve non-tax matters when it is beneficial to maintain tax records. For example, if you suffer a disaster you may need to produce receipts for insurance purposes.
Warning
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The IRS uses an automated scoring process known as discriminate function system to select taxpayers for audits. The system scores returns based on a comparative analysis of similarly situated returns. If it selects you for an audit, the IRS will request verification of items listed on your income tax return. If you cannot provide the verification, the IRS may remove the questioned credit, deduction or exemption from your return, increasing your taxable income.
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