We are less than four months away from the April tax deadline and many taxpayers are planning for tax season and preparing necessary documents and paperwork. While everyone dreads receiving an IRS letter after the April 15 tax deadline, it's wise to be prepared in the event an audit or dispute arises.
So what do you need to do and more importantly, what types of tax and financial documents do you really need to save and for how long?
Due to the IRS' clandestine approach to the audit process, taxpayers are often left in the dark as to why they are selected for an audit. A taxpayer's best defense against incurring any extra tax charges, fines or penalties is to keep comprehensive and organized records of the following financial documents many of which, thankfully, are now easily accessible via online.
- Statements from all banking and checking accounts
- Credit card statements
- Receipts from ATM deposits and withdrawals and credit and debit card purchases until they appear and are verified as accurate on a bank statement
- Statements from any investment accounts that detail contributions to retirement accounts and stock or bond purchases. When possible, an individual should obtain and keep records that go back seven years.
- Loan records obtained to purchase a home, car or property as well as personal or business loans
- Copies of checks, particularly those related to large purchases such as a home or car. Additionally copies of any checks made out to charitable organizations that an individual claims as deductions should also be kept.
In most cases, the IRS will request and review financial documents going back three years from the audit year. The agency can, however, request documents going back six years or even longer in cases where the IRS claims a taxpayer made an egregious or intentional error.
If the latter is the case, it's important to contact a criminal tax lawyer who handles criminal IRS defense matters. An attorney can answer questions, interact with the IRS and potentially help mitigate legal problems before they arise.
Source: CBS News, "How to defend yourself during a tax audit," Ann Dullaghan, Jan. 19, 2015
IRS.gov, “IRS Audit FAQs,” 2015