Keeping some tax related receipts forever is becoming the norm.
Back in 1913, after the ratification of the Sixteenth Amendment (we have President Wilson to thank), few could have imagined how intrusive income taxes would become into our everyday lives. Now, you can consider anything tax related to be fair game for at least three years after you file any given year's return.
But, the statue of limitation goes back at least three years in just about every case, but also goes back seven years if underreported income is found or believed to excist. In other words, the statue is effectively seven years. Plus, in the cases of non-reporting or fraud, the IRS has an indefinite amount of time to go back as far as they want. If the IRS suspects fraud, a lifetime audit is possible.
In the age of electronic documents, a business owner should consider scanning anything and everything before shredding. If shredding, always cross-cut and never simply strip cut because it's easy to put together strips of paper (remember the scene in "Lord of War"?).
Many tax advisors recommend (along with the IRS) that you maintain records of our W2s until you begin receiving Social Security payments. If there's a discrepancy in the amount of social security you should receive, having records going back decades could help.
You also may have to calculate the taxable portion of distributions, so keep all your retirement related documents so you can "rebuild" your cost basis if needed. You may need the information to demonstrate your cost basis recovery time/amount.
Failed to keep your tax receipt?
You're not totally out of luck. There's an old and (somewhat) famous court case that holds the IRS must allow other evidence of expenses other than receipts. In Cohan v. Commissioner, George Cohan won his case that paying with cash and not keeping receipts isn't a total barrier to taking a deduction. The IRS apparently doesn't enjoy that case much and I doubt an agent will offer up the suggestion that it's "ok" if you can show an expense by another method, so book-mark this page for your future reference.
In the 1930s, the Second Circuit Court of Appeals agreed (after the first trial court said no) with Mr. Cohan that other evidence (including witness testimony) could establish a reasonable basis of business expenses. If you're in a bind and make an honest good-faith effort to estimate a business expense, Cohan v. Commissioner maybe your "get out of jail free card". Keep in mind that your milage may vary depending on the ability to convince a third party (think tax judge) the expense is real, reasonable, and required.
Robert Weinstein is a husband, dad, stock market junkie, real estate broker, and of course…Insurance agent. Interests include my family, economics, marketing, technology, real estate, finance/investing, history, and Asia.
Robert’s insurance expertise includes having the designation of Certified in Long-Term Care (CLTC) and assist in asset protection for families with members entering retirement.
Robert is also an accomplished syndicated writer whose work can be found in TheStreet, MainStreet, CNBC, Forbes, Yahoo Finance, Seeking Alpha, MSN Money, The Money Show, Stock Saints, Motley Fool, Fidelity, Minyanville, RealMoney Pro, and many national and international newspapers.