Why Tax Records Are Important

: Chris Lee Law Firm

  Filed under: Taxes

taxesYou might have heard that you should keep all of your tax records for at  least seven years. While this rule is a good one for most people, there are some additional considerations for why you may want to keep them indefinitely.

1. Audits— the IRS has a statute of limitations of three years for filing a refund claim. If you haven’t filed your tax return within the three year window, you may miss out on a refund. The IRS also has the right to audit any of your prior tax returns. Generally they will do so long before the seven year window, but you can never be too sure that an old tax return won’t resurface.

2. Bankruptcy — if you have filed for bankruptcy you will be required to provide your prior tax returns and associated financial documents. Having a detailed account of your finances and taxes will boost your chance at a successful debt discharge in Texas bankruptcy. Further, if part of your debts being discharged in bankruptcy are taxes, you are going to want to protect these records in case the IRS needs to reference them.

3.  Estate planning— f people planning their retirement or estate funds to be given to beneficiaries upon passing, an account of prior tax history can best guide them in their financial planning services. Your prior tax records can help you outline the details of what you will need in terms of retirement funds, as well as document transactions over the purchase or sale of any property.

4. Business operations — keeping tax records indefinitely is especially important for business owners who have paid payroll taxes, property taxes and personal tax liabilities. The complex nature of the business taxation process warrants the need for thorough record keeping, including all tax payments.

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