Tax Tip: Save Your Records Even If Your Tax Preparer Didn’t Need Them

The levels of information needed are much different for preparing a tax return v. going through an audit.  Your tax preparer is only required to ask for verification on certain items, generally, when something doesn’t look right.  Beyond this low level of  required diligence, tax preparers can take your word for it on most of your information without looking at receipts, bank statements or other documentation.  This doesn’t mean these records aren’t necessary to have and keep.

If you ever are unfortunate enough to be audited you will need this documentation.  Often taxpayers incorrectly assume the information provided to their tax preparer is sufficient to defend their tax return in an audit.  However, the auditor will need to see all the receipts, statements, invoices, and other items of documentation and cannot take your word for it the same as your tax preparer.  Therefore, it is extremely important to retain all this information.  Retaining the information from the start is the easiest method.  After giving the tax preparer all the information to prepare the return you should then organize and save all your documentation so you are prepared if you are ever audited.  This will be much easier than a few years from now trying to find everything you had at that moment of the tax return.

As a general rule you should always retain all tax records for at least 4 years, and longer if possible.  If the IRS or CA allege fraud they could go back further than the standard audit period (3yrs IRS / 4yrs CA).  Also, some items might be relevant even after the original year of the tax return cannot be audited.  For instance, if you have an asset you are depreciating over 7 years, if the 7th year gets audited you might have to show how much you bought it for 7 years ago to justify the expense, even though that tax return from 7 years ago cannot be audited.

Overall, taxpayers need to be aware that they are responsible for the proper documentation of items on their tax return.  Your tax preparer should be able to tell you exactly what is needed for your records in case of an audit, even if they do not need to review it to prepare your tax return.  If you have questions about proper documentation or need assistance with an audit contact us at Hone Maxwell LLP today.  For more tax updates and the latest news you can follow us on twitter @HMLLPTax or facebook at

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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