How long should a taxpayer keep records?
- The IRS typically audits tax returns within three years of filing, but this extends to six years if over 25% of income is unreported and is unlimited in fraud cases. - Certain transactions like real estate sales or business asset depreciation may require keeping records beyond the standard period. - For example, a homeowner who takes a home office deduction must keep all related purchase, improvement, and sale documents until three years after filing the return that reports the home sale profit. - It is advisable to retain such records for at least seven years to ensure safety. - Keeping detailed receipts and documentation of property acquisition, maintenance, improvements, and sale is crucial to protect tax deductions. - Proper record-keeping prevents costly losses during audits or reviews by tax authorities. - For personalized advice on record retention, contacting a tax professional is recommended.