Jul 10

How Long Should You Keep Your Tax Records?

If you think your tax work is done once you file your return, think again. Now you need to file your tax records.
Keeping your tax returns and the documents you used to complete them obviously is critical if you’re ever audited.

The statute of limitations on IRS audits is a key factor in deciding what to keep and for how long. Good record-keeping also could help if you need to file an amended return because you discovered a mistake or learned of a tax break you should have claimed.

So what tax-related records should you hang on to and for how long? Let’s look at what the IRS recommends based on how long it has to come back at you with questions.

Three years

In typical tax-filing situations, the IRS has three years to decide whether to audit — or, as the agency prefers to call it, examine — your return. That means you should keep your records for three years from the date you filed the original return.

This is good practice, too, because you generally have three years from when you filed your return — or two years from the date the tax was paid, whichever is later — to claim a refund or credit from the IRS.

You also should hang on to tax records for three years if you file a claim for a credit or refund after you filed your original return. The limit here could be shifted to two years from the date you paid any due tax, if that date is later than the three-year limit.

Six years

The three-year audit period and associated record-keeping guidelines apply in standard filing circumstances. If, however, you don’t include all your earnings on your 1040, the IRS gets a longer window to decide on a potential audit, so you need to keep your tax records longer, too.

Specifically, tax law says that if you under-report your income by more than 25%, the statute of limitations is doubled: The IRS then has six years to decide whether to audit your return. To deal with any questions, you would need to have those six years worth of tax documents on hand.

Seven years

Sometimes a stock bet doesn’t pay off. In such cases, you can write off the loss from the “worthless security.” If you do, hold those records for seven years. That’s how long the IRS has to come back with questions about your bad investment. The same time frame applies to deductions for a bad debt.

Indefinitely

There are some instances in which to keep tax records perhaps forever.

Say someone — not you, of course — commits tax fraud. There is no statute of limitations on tax fraud audits. When the IRS suspects someone entered illegal information on a return, it can investigate at any time, not just within the standard three-year window.

You also need to keep documentation of why you didn’t file a tax return. Yes, that sounds like trying to prove a negative, but if, for example, you took a year off to take care of a sick relative and didn’t earn enough income to require that you file, proof of that will short-circuit a detailed IRS examination of your missing tax year.

How to keep your records

OK, you’re probably wondering just where you’ll store all that paper. That’s not a problem.

The law doesn’t require any special record-keeping system for all taxpayers. You can keep your records in any manner that works best for you, as long as it allows you to produce the material if the IRS asks. For most taxpayers nowadays, that means accessing records in digital form.

Converting your tax and other key financial records to an electronic format can save you a lot of space. All the IRS requires is that your electronic record storage meets the same standards that apply to hard copies. That means when you replace the paper versions, you must maintain the electronic storage systems for as long as they might be needed under the tax statutes of limitation.

Article by: Kay Bell, NerdWallet

Aug 02

iTune Gift Cards IRS Scam

IRS Warns Taxpayers of Summer Surge in Automated Phone Scam Calls; Requests for Fake Tax Payments Using iTunes Gift Cards

WASHINGTON — The Internal Revenue Service today warned taxpayers to stay vigilant against an increase of IRS impersonation scams in the form of automated calls and new tactics from scammers demanding tax payments on iTunes and other gift cards.
The IRS has seen an increase in “robo-calls” where scammers leave urgent callback requests through the phone telling taxpayers to call back to settle their “tax bill.” These fake calls generally claim to be the last warning before legal action is taken. Once the victim calls back, the scammers may threaten to arrest, deport or revoke the driver’s license of the victim if they don’t agree to pay.
“It used to be that most of these bogus calls would come from a live-person. Scammers are evolving and using more and more automated calls in an effort to reach the largest number of victims possible,” said IRS Commissioner John Koskinen. “Taxpayers should remain alert for this summer surge of phone scams, and watch for clear warning signs as these scammers change tactics.”
In the latest trend, IRS impersonators are demanding payments on iTunes and other gift cards. The IRS reminds taxpayers that any request to settle a tax bill by putting money on any form of gift card is a clear indication of a scam.
Some examples of the varied tactics seen this year are:
• Demanding payment for a “Federal Student Tax”–IR-2016-81
• Demanding immediate tax payment for taxes owed on an iTunes or other type of gift card
• Soliciting W-2 information from payroll and human resources professionals–IR-2016-34
• “Verifying” tax return information over the phone–IR-2016-40
• Pretending to be from the tax preparation industry–IR-2016-28
Since these bogus calls can take many forms and scammers are constantly changing their strategies, knowing the telltale signs is the best way to avoid becoming a victim.
The IRS Will Never:
• Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
• Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card, gift card or wire transfer.
• Ask for credit or debit card numbers over the phone.
If you get a phone call from someone claiming to be from the IRS and asking for money and you don’t owe taxes, here’s what you should do:
• Do not give out any information. Hang up immediately.
• Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page or call 800-366-4484.
• Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.
• If you think you might owe taxes, call the IRS directly at 800-829-1040.

Dec 23

Record Retention

Well-organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination or to prepare a response if you receive an IRS notice.

Records such as receipts, canceled checks and other documents that support an item of income or a deduction, or a credit appearing on a return must be kept so long as they may become material in the administration of any internal revenue law, which generally will be until the period of limitation expires for that return. For assessment of tax you owe, this generally is 3 years from the date you filed the return. Returns filed before the due date are treated as filed on the due date.

There is no period of limitations to assess tax when a return is fraudulent or when no return is filed. If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is 6 years from when the return is filed. For filing a claim for credit or refund, the period to make the claim generally is 3 years from the date the original return was filed (or the due date for filing the return if the return was filed before that date), or 2 years from the date the tax was paid, whichever is later. For filing a claim for an overpayment resulting from a bad debt deduction or a loss from worthless securities, the time to make the claim is 7 years from when the return was due.

In tax years 2014 and later, you should keep records of your own and your family members’ health care insurance coverage, including records of employer provided coverage or premiums paid and type of coverage for private coverage, so you can show that you and your family members had and maintained required minimum essential coverage. If you are claiming the premium tax credit, you will need information about any advance credit payments you received through the Health Insurance Marketplace, the premiums you paid, and the type of coverage you obtained at the Marketplace. If you or any of your family members are exempt from minimum essential coverage, you should retain certificates of exemption you may receive from the Marketplace or any other documentation to support an exemption claimed on your tax return.

If you have employees, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later. For more information, see Publication 15, (Circular E), Employer’s Tax Guide.

If you are in business, there is no particular method of bookkeeping you must use. However, you must use a method that clearly and accurately reflects your gross income and expenses. The records should substantiate both your income and expenses. Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses. Publication 17, Your Federal Income Tax for Individuals, provides more information on recordkeeping requirements for individuals.

Dec 23

2016 Tax Open Date

The official opening date for filing your 2015 tax return is Tuesday, January 19, 2016.

Aug 10

Refund Status

www.irs.gov