Keeping your tax records
You need to keep records related to your personal or business tax returns. The statute of limitations to examine your return and mail a Notice of Proposed Assessment (NPA) adjusting your return is usually 4 years from the due date of the return, or the date the return is filed.
Exception: An extended statute of limitations period may apply for California or federal tax returns that are related to, or subject to a federal audit or if the omission of income is greater than 25%. For situations that involve abusive tax avoidance transactions, the statute of limitations to assess additional tax is 12 years.
Good records will help you do the following:
- Determine whether you are making or losing money and why
- Prepare your financial statements
- Identify and categorize sources of revenue
- Keep track of deductible expenses
- Prepare your tax returns
- Document your expenses and transactions in case of an audit
Watch our short YouTube video, Tax News Live: Record Keeping, which provides record keeping information.
How to keep your records
You may need your records to complete your tax return correctly. If we review your tax return, we may ask for additional documents. You should keep a copy of your return and the records that verify all of the following:
Some records need to be kept longer. For example, keep property records as long as they are needed to figure the basis of the property.
Generally, you must have documentary proof to support your expenses, such as:
- Cancelled checks
Additional proof is needed to support deductions for travel, entertainment, gifts, and auto expenses.
You should keep records of your business income and expenses for your tax return.
Common records include:
- Sales and income, such as:
- Copies of 1099s
- Sales invoices
- Sales agreements
- Business expenses, such as:
- The type of expense
- Date and amount of payment
- Copies of cancelled checks
- Gains and losses, such as:
- Cost of the asset
- Sales price
- Any improvements
- Purchase agreements
- Escrow papers
- Copies of checks
- Brokerage statements
- Employee pay records if you employ people
- Records about your personal income