Watch the video to drop your taxes in 2016!
- Filing your tax returns on time, the IRS, at the federal level, can audit you going three years back.
- Document retention; any documents related to real estate should be kept permanently. Any other receipts should be kept for a minimum of four years to qualify you for the State of Arizona audits, more preferably for seven years.
- Are electronic documents acceptable?
Hello everyone; it’s Shauna, the Tax Goddess. Today, we have nine days left until the corporate deadline. It’s an exciting time of the year when I get to talk to all of our business clients and work with them to tweak those final little changes. The things that absolutely have to be done before the tax return gets filed to make sure they’re getting the best bottom dollar line. We start to look at what types of things we need to be doing in 2016, right before the end of this year to drop those taxes further.
Today, I want to talk to you about document retention. We’ve been getting many questions lately: “How long do I need to keep documents? Three years? Seven years? Do I need to keep them permanently?” There are a lot of questions about it out there and a lot of different answers that people are getting. So, I want to set the record straight. If a document relates to a real estate deal, that is buying a piece of property, selling a property, which may include your home or a rental property, or anything like that, it should be kept permanently. Now, you can scan them and have them digitized but I have seen cases where the IRS wants to see the original piece of paper (with the coffee stain, with the dog bite in that document). So anything related to real estate, we highly recommend that you keep those permanently.
Now, for any other documents, for example, receipts, charity donations, etc., the general recommendation is to keep the documents for seven years, at a minimum, assuming that you’re filing your tax returns on time. The IRS at the federal level can audit you going three years back. This is also assuming that you have not grossly understated your income, more than a 25% understatement. Such an understatement constitutes fraud. As long as you’re not perpetrating a fraud on the IRS, they can only audit you going back three years. The State of Arizona can go back four years. You’ll want to keep your records, receipts, donations, charity, expense proceeds for your business going back four years to make sure that you’re covered for the Arizona audit. A general idea would be to keep it seven years back.
Now, one of the questions that we hear a lot is, “Are electronic documents acceptable?” Honestly, I’ve seen cases roll two different ways. I’ve had an IRS case before where they wanted to see the actual, physical documents and a scan was not acceptable. They tend to look at those when there’s an issue with the actual bank statements themselves. If they believe either the bank statements are not correct or something is being hidden, that is when they’re really trying to find fraud or some other kind of issue going on in the bank statements, they will actually request paper statements. If you’ve changed banks or no longer have the same bank accounts, you’re going to want to keep those records at least for a seven-year time frame.
Otherwise and generally, scanned copies of the receipts are okay. Make sure that you always have notes on your receipts. Any receipt should be talking about, “who, what, where, when, why.” Generally, those will apply to your meals and entertainment receipts. (If you’re going out to a restaurant, why were you out with that person? Why is that particular receipt deductible? Were you out for coffee with your CPA to discuss tax strategy?) Make sure that you’re keeping those receipts.
So any documents related to real estate should be kept permanently. Any other receipts should be kept for a minimum of four years to qualify you for the State of Arizona audits, more preferably for seven years.
