The 3-Year Rule is a Trap
The general rule for record retention—the time you must keep records—is until the 'period of limitations' for that tax return runs out. The most common timeline is the 3-Year Rule: keep records for 3 years from the date you filed your return (or the due date, if later). However, relying solely on this is a major compliance trap.
Compliance is a non-negotiable part of a Safe business. The both/and solution is to keep records for the longest required time. You must keep records for 6 years if you fail to report income that is more than 25% of the gross income shown on your return. Furthermore, keep them for 7 years if you file a claim for a loss from worthless securities or a bad debt deduction. Finally, you must keep records indefinitely if you file a fraudulent return or if you don't file a return at all.
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DISCLAIMER: This content is for educational purposes only and should not be considered personalized financial advice. Always consult with a qualified financial professional before making financial decisions.