Updated July 28, 2015
How Long To Keep Tax Records Chicago Illinois
The general rule for keeping records is at the Federal or IRS Level, seven years, and at The State Level, nine years. This amount of time is calculated from the filing date of the return, rather than the year of the return.
However, if the authorities can prove fraud, they can go back as many years as they want. Back to the first year you were open. It’s a terrible burden on any business. No one knows better than me, but don’t get rid of your records.
Also, keep them in a “paper” format. Most records, once they are put into a “paperless” format are considered tainted, and are therefore non-admissible in taxation proceedings. Once they become electronic they can be changed utilizing graphic design software. There are reams of tax law on the subject of what is an original document, and therefore admissible or inadmissible in an audit or taxation proceeding. Don’t fall into the “paperless trap”. Keep your records in their original format.
What happens if you don’t have your records in original format and you are audited?
You should have changed accountants a long time ago, because this never should have been allowed.
Proper documentation can be a real pain, but it is your only salvation in the event of an audit. Getting a copy of many of the source documents years after the fact may, or may not be impossible. You can always get a copy of bank statements, canceled checks, and deposit tickets from the bank. It may be quite expensive, but it is possible. You can even get copies of your old tax returns from The Internal Revenue Service.
Inventory, if you have one, can be a problem. If they are auditing an income tax return from three years ago, and you haven’t documented you inventory properly, what are you going to do now?
What about your Sales? If you didn’t keep copies of all of your invoices, register receipts, and/or sales journals how are you going to prove that your sales weren’t actually twice what they were?
What about the expense side of your return? If you didn’t keep copies of your receipts, and the vendor is still in business, you may still be able to get a copy. What if they’re out of business. Many times a canceled check is not enough to prove the claim. All of those deductions could be disallowed resulting in additional tax, interest, and penalty.
If you are having problems with your How Long To Keep Tax Records Chicago Illinois or have issues with your accounting in general, we would love to help. I enjoy hearing from my readers, and can be contacted at
Chris@AccountingSolutionsltd.com
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Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.