Tips for Family Record Keeping: Organizing Tax Records

Families are like mini-businesses – they plan, buy, save and invest.  This is why keeping family records is just as important as the way businesses keep records.  Record keeping saves time, trouble, money, and frustration.  In this three week Family Record Keeping series, we’ll explore the reasons record keeping is important and how to properly implement a system that works for you and your family.

With tax season coming to a close, we’ll begin with tips about tax records.  You might be wondering how long you should keep tax records in your personal or family filing system.  Typically, all records of income or deduction expense should be kept for three years since the Internal Revenue Service (IRS) has a three year statute of limitations on auditing a return.

There are several conditions that may require you to keep tax records on hand for more than three years:

• If you use the income averaging option, you may need to prove your taxable income for four base years. 

•  If you failed to report more than 25% of your gross income, the government will have six years to collect the tax or start legal proceedings. 

• Filing a fraudulent return or failing to file a return eliminates any statute of limitations for an audit by the IRS.

• Keep records that show the original cost or value of your property or show any home improvement costs. This can reduce capital gains tax if your home, land or property is ever sold for more than its original cost or value.

• All canceled checks are not needed to support tax deductions. Save only those checks that substantiate an income tax deduction, such as checks paying for medical/dental expenses or charitable contributions. Putting a "T" for "tax" in the memo blank of a check when you write it might help you sort canceled checks faster. If you only have a duplicate check, you may need the monthly checking account statement to verify that the check went through.

• Keep a copy of filed tax returns. Should you need one, a prior tax return copy can be obtained from the IRS center where you filed your return. You’ll have to complete form 4506 (Request for a Copy of Your Tax Form) and pay a fee. IRS center addresses are listed in most IRS publications.

Source:

HE-445 (Revised), May 1998

Debra Pankow Family Economics Specialist

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