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Paging the TAX TROLL!

Tax Troll - this is seemingly basic question but I keep getting conflicting information from credible sources and wanted to hear from you.

How many years worth of receipts does and individual and a business need to keep in case of an audit?

Any other info along these lines is welcome.


by Anonymousreply 709/07/2013

Recordkeeping for taxes is tied to the statute of limitations, which is the period of time that a taxing authority technically has to audit you and ask you to produce those documents.

The basic statute for federal taxes is three years after the due date of the return (including extensions), or two years after a tax was paid, whichever is LATER. So, for example, if you are talking about 2012 returns, the statute expires on April 15, 2016 (or Oct 15 if you filed an extension for that year.) Some state statutes may be longer (My state, AZ, is four years.)

But note that a statute of limitations doesn't begin to run if you fail to file a return. So, if you didn't file a required 2000 return, the statute is still open for them to come after you, 13 years later!

Also, in some cases, the IRS has successfully claimed that a return that was filed was so incomeplete, leaving off a substantial part of reportable income, that it doesn't really count as "filed" at all, allowing the IRS to go after the person longer than 3 years.

There is also a longer statute applicable to payroll matters: If you are an employee, you need to keep records of employees hours and pay for at least seven years, or even longer if any of the employees are minors at the time. Check with your attorney or tax advisor.

WHAT records have to be kept this long? Certainly copies of returns, and all documentation used in its preparation (W-2, 1099s, mortgage statements, and accounting of deductions.) Actual receipts for business expenses aren't required, if the total on the receipt is under $75, but you need a written record of some sort, such as a check register or Quickbooks printout, showing the date, payee, amount, and what it was for.

My state (AZ) sometimes freaks out and asks for copies of returns back about 7 years. I tell them that the statute is only 4, and they respond that is only the case if a return is filed, and they say it wasn't, so the copy should have been kept indefinitely. It's a "chicken or the egg" type argument, so I usually suggest my clients keep at least copies of returns (not all docymentation) for ten years, although it isn't technically a required.

by Anonymousreply 109/05/2013

I will soon turn 70. In six months 'am told by a friend that I will have to remove money from my IRA. What is the formula and how much should I take out for taxes?

by Anonymousreply 209/05/2013

[quote]I will soon turn 70. In six months 'am told by a friend that I will have to remove money from my IRA. What is the formula and how much should I take out for taxes?

You must begin taking annual "minimum distributions" from all qualified plans (all IRAs together are considered one plan, and each individual annuity or 401K is additional. Roth IRAs don't count.) starting for the year you turn 70½ (That's 70 and a half, in case DL messes up the character).

Note I said you have to take it FOR the year you turn 70½, but you can actually postpone that to the first quarter of the following calendar year, if you want. Bad idea, generally, since that means you have to take a total of TWO disrtibutions in the same year!

If you have a financial advisor, have him compute the amounts and give it to you in writing. If your IRA is in a bank, they can do the same thing for you. If you want to do it yourself, look at IRS Pub 590 at the link vbelow ... Appendix C in back has the life expectancy tables used for the computation.

As far as how much tax you will owe, that depends on all other factors on your return. The IRA withdrawal will be taxable at your marginal rate, whatever that is.

by Anonymousreply 309/05/2013

Thanks, EA.

by Anonymousreply 409/06/2013

Thank you Tax Troll!

by Anonymousreply 509/07/2013

Suze Orman, link on how long to keep all types of financial records. Financial Clutter, What To Keep And What To Get Rid Of

by Anonymousreply 609/07/2013

But remember folks, there is no statute of limitations on fraud.

by Anonymousreply 709/07/2013
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