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February 2, 2014

EXTENSION NEWS: How long to store tax records?

By KATHY SMITH

You may be starting to collect your documents that you need for filing your 2013 taxes. You may have found that you have tax records and other information for many years. You may wonder how long do I need to keep all of these records.

Officially, the Internal Revenue Service has three years to audit federal income tax returns, but there are exceptions. The agency gives itself six years after a return was filed to audit in unusual cases — for example, if additional income comes to light, and the amount is more than 25 percent of the income shown on the return.

In addition, if the IRS determines a return was false or fraudulent, an audit can occur at any time — there is no time limit.

Even as you purge your old files, you might want to keep some of the records that you have with your tax returns. For example, you may want to hang onto your W-2 forms, which show your annual income and the taxes withheld from your paycheck.

These could be important at some point, such as when you file for Social Security or other benefits, in case there’s some type of discrepancy about your work history.

In addition, if you’ve kept records pertaining to buying or refinancing property or making major home improvements with your taxes, pull those before you start shredding. They could be useful if you sell your property in the future and need to establish capital gains or losses.

In keeping tax returns and information here are the recommendations from the IRS:

• You owe additional tax and situations 2, 3, and 4, below do not apply to you: keep records for three years.

• You do not report income that you should report and it is more than 25 percent of the gross income shown on your record; keep records for six years.

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