How long are tax records kept
Ask The Experts: How Long Should Tax Records Be Kept?
December 13, 2010 (The Sacramento Bee) How long tax records should be kept and the amount of taxes owed on pension and Social Security income are issues addressed by IRS expert Jesse Weller.
QUESTION: How long does the IRS require taxpayers to keep tax records? I hear it ranges from three to 10 years. I'm in my 70s, retired, and have been keeping my tax records since 1990. I would like to destroy these old records and just keep what is legally required by the IRS.
ANSWER: The general rule is at least three years. Taxpayers must keep records supporting items shown on their federal tax returns as long as needed for administration of tax laws. That means records should be kept until the time period expires to amend a return to claim a refund or tax credit, or when the IRS can assess additional tax.
(In general terms, tax records should be kept for a minimum of three to seven years.)
The usual time period for the IRS to assess additional tax after a return is filed is three years. If a taxpayer does not report income that is more than 25 percent of the gross income shown on the return, the IRS can assess additional tax for up to six years.
In cases where no return or a fraudulent return is filed, there is no time limit for when the IRS can assess taxes owed.
The normal time period to claim a refund is three years after filing, or two years after the tax was paid, whichever is later. The period to claim a loss from worthless securities is seven years.
Some records, such as those relating to real estate or investments like stocks or bonds, should be kept for longer periods. Keep these records as long as you own the property or investments, and then follow the guidelines above.
Overall, I advise taxpayers to
keep copies of their actual tax forms indefinitely but not the underlying receipts, records and other documentation once the time periods have elapsed.
There are other reasons to keep records longer. For example, an insurance company or creditors may require certain records be kept longer than the IRS recommends.
More information is in IRS Publication 552, Recordkeeping for Individuals, which is posted at IRS.gov.
Q: My wife and I will be retiring soon. How much income tax would we pay on pension and Social Security income of $80,000, assuming the standard deduction? Are we required to pay into Social Security and Medicare until age 65 if we have no earned income?
A: Although I cannot estimate your 2011 income tax, you are asking the right questions. That's because you may need to make estimated tax payments or have federal income tax withheld from your pension to avoid a penalty for underpayment. I can give you some info that may help.
IRS Publication 505, Tax Withholding and Estimated Tax, explains the rules and how to avoid the underpayment penalty. The vouchers to make a required payment will be available with Form 1040-ES, Estimated Tax for Individuals.
If you are required to pay quarterly during the year, or if pre-paying by preference (rather than paying the total tax at year's end), another option is to have federal taxes withheld from your pension. IRS Form W-4P, Withholding Certificate for Pension or Annuity Payments, can be used for this purpose.
Social Security and Medicare taxes are generally paid on earned income from wages or from self-employment. There are no age limits on when these taxes apply to a worker's income. If you are not working, they would not be applicable.
The 2011 tax forms are not yet available, but not to worry; the first estimated tax payment is not due until mid-April next year. The new revisions will be posted on the IRS.gov website.
Copyright The Sacramento Bee 2010Source: accounting.smartpros.com