Boston residents share one big question with others across the country: how long should they retain their federal income tax returns and their supporting documents. Answering this question may not be as simple as people think. However, the IRS generally only goes back three years for an audit, but that could be extended depending on a person’s circumstances.
When the IRS audits an individual, it is ordinarily due to common issues with federal income tax returns. Issues such as underreporting income and claiming deductions and credits that an individual may not have the right to claim ordinarily serve as red flags for the nation’s taxing authority. For this reason, it is important to keep any documentation used when filling out a return. In addition, the more organized this information is, the better off the filer may be since disorganization could make the auditor suspicious that there is more to the story.
In order to be on the safe side, it is recommended that people keep their tax returns and supporting documentation for at least seven years, especially for those with unique tax situations. Tax returns involving issues such as selling a home, selling stocks and other transactions that could result in capitol gains or losses should be kept even if they are outside the three year mark. Some individuals advise keeping tax records indefinitely.
This conflicting information is why many people, including Boston residents, remain confused regarding how long they should retain their tax records in case the IRS orders an audit. For this reason, it would be wise to consult with an experienced tax attorney who can evaluate the situation and make a recommendation based on a person’s unique circumstances. Doing so could give filers the peace of mind they need that should the IRS come knocking they are prepared.