One common tax myth is the belief that you don’t need to keep tax records after filing your return. This misconception can lead to complications if you are audited or need to amend your return. Here's what you need to know to stay compliant and avoid these pitfalls.

Origin of the Myth

• Simplicity Desire: Many people prefer to dispose of paperwork once they believe it is no longer needed.

• Lack of Awareness: There is often confusion about how long tax records should be kept and why they are necessary.

Reality of Keeping Tax Records

• Three-Year Rule: The IRS generally recommends keeping tax records for at least three years from the date you file your return.

• Six-Year Rule: If you omit more than 25% of your gross income, the IRS suggests keeping records for six years.

• Indefinite Retention: For fraudulent returns or if no return was filed, keep records indefinitely.

IRS Guidelines on Record Retention

• General Rule: Keep records for at least three years.

• Extended Periods: Keep records for six years if there is a substantial understatement of income.

• Property Records: Keep records related to property until the period of limitations expires for the year in which you dispose of the property.

• Employment Taxes: Keep employment tax records for at least four years after the date that the tax becomes due or is paid.

Why the Myth Persists

• Desire for Simplicity: Many taxpayers prefer to minimize the amount of paperwork they retain.

• Misleading Advice: Incorrect advice from non-professional sources perpetuates the myth.

Avoiding the Pitfall

• Understand Retention Periods: Clearly understand the IRS guidelines for retaining tax records.

• Three Years: General recommendation for most records.

• Six Years: If you significantly underreport income.

• Indefinitely: For fraudulent returns or no return filed.

What You Need to Keep

• Income Documents: W-2s, 1099s, and other income statements.

• Expense Receipts: Documentation for deductions and credits.

• Property Records: Documents related to the purchase, improvement, and sale of property.

• Tax Returns: Copies of filed tax returns.

What You Need to Do

• Organize Records: Maintain an organized system for keeping tax records.

• Secure Storage: Ensure records are stored securely to protect sensitive information.

Consulting a Tax Professional

• Seek Professional Advice: Consulting a tax professional can help ensure you understand which records to keep and for how long.

• Accurate Records: A professional can help you maintain proper documentation and navigate the complexities of record retention.