How Long Should I Keep My Financial Records? Tips for California Taxpayers
As tax season comes to a close, many California taxpayers may be wondering how long they need to keep their financial records. It's important to keep accurate and organized financial records in case of an audit, to claim deductions and credits, or to prove compliance with tax laws. Here are some tips to help you determine how long to keep your financial records.
IRS says keep records at least 3 years
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According to the Internal Revenue Service (IRS), taxpayers should keep their tax returns and supporting documents for at least three years after the filing date. This includes receipts, canceled checks, and other documents that support income, deductions, or credits claimed on the tax return. The IRS may audit your tax return within this three-year period, and having accurate records can help protect you from penalties or additional taxes owed.
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However, if you've underreported your income by more than 25%, the IRS can go back six years to audit your return. If you've filed a fraudulent return or not filed a return at all, there's no statute of limitations. In these cases, it's essential to keep all financial records related to the returns indefinitely.
What else should you keep?
In addition to tax returns, other financial records that should be kept for an extended period include bank statements, credit card statements, and receipts. If you're self-employed or a small business owner, you may need to keep these records for longer periods. For instance, the IRS may audit your business return up to six years after the due date or filing date, whichever is later.
It's a good idea to keep track of all financial records electronically, using a secure online storage service, or on an external hard drive, in addition to paper records. Always be sure to back up your electronic records to ensure that they're not lost in case of a system failure or cyberattack.
Always consult your tax advisor
If you're unsure about how long to keep a specific document, it's always a good idea to consult with a financial advisor or tax professional. They can provide guidance specific to your situation and ensure that you're staying compliant with IRS regulations.
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In California, the Franchise Tax Board (FTB) recommends that taxpayers keep their records for at least four years. This includes records related to state taxes, such as sales and use tax, withholding tax, and corporate tax. Keeping your financial records organized and up-to-date can save you time and headaches down the line. By following these tips and guidelines, you can ensure that you're keeping accurate records and staying compliant with tax laws. Always consult your tax advisor, your CPA or the IRS on your individual needs.
Sources:
• IRS Publication 17, Your Federal Income Tax (For Individuals): https://www.irs.gov/pub/irs-pdf/p17.pdf
• IRS Publication 583, Starting a Business and Keeping Records: https://www.irs.gov/pub/irs-pdf/p583.pdf
• IRS webpage on Recordkeeping: https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping
• California Franchise Tax Board webpage on Recordkeeping: https://www.ftb.ca.gov/file/business/record-keeping.html