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When Can You Throw Away your Tax Records? by Joseph L. Saka, CPA/PFS

Posted on April 21, 2017 by Joseph Saka

Individuals and businesses who met their 2016 U.S. income tax responsibilities and filed their returns by the April and March deadlines can breathe a collective sigh of relief. However, these taxpayers must also recognize that the IRS has a right to question and audit their returns for three years after the initial filing date. This statute of limitations extends to six years when a taxpayer underreports income or claims losses for bad debt or worthless securities, or indefinitely when a taxpayer fails to file or files a fraudulent tax return. Under audit, the onus to disprove IRS claims falls to the taxpayer. For this reason alone it is critical that taxpayers hold onto and maintain their tax returns and all supporting financial, legal and healthcare information beyond the tax filing deadline.

It is not enough for taxpayers to retain these documents and stuff them into a shoebox in the back of their closets. Rather, special care should be taken to maintain them in an orderly and efficient manner for easy access, if needed. At the same time, however, taxpayers should take steps to store these records in safe locations, either on paper, electronically or in an encrypted format, to protect them from public view and reduce any risk of exposure to potential identity theft. Many accounting firms, including Berkowitz Pollack Brant, have client portals that allow taxpayers and advisors to securely share and store documents. While these portals allow taxpayers to authenticate their identities and gain access to their records at any time, they should not be relied on as a taxpayer’s sole form of document preservation.

Rather than rushing to dispose of document from the 2016 tax season, taxpayers should rely on the following guidelines for retaining their tax personal and business tax returns and supporting documentation.

About the author: Joseph L. Saka, CPA/PFS, is CEO of Berkowitz Pollack Brant, where he provides a full range of income and estate planning, tax consulting and compliance services, business advice, and financial planning services to entrepreneurs, high-net-worth families and family companies and business executives in the U.S. and abroad. He can be reached at the firm’s Miami office at (305) 379-7000 or via e-mail at info@bpbcpa.com.

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