"How long should I keep my records in case of an audit?"

January 15, 2006
It depends on the kind of audit and whether it is the Internal Revenue Service or the state Department of Revenue that is doing the audit. Currently the I.R.S. is auditing the 2003 year tax returns.
However when they audit one year they usually want to see the year before and the year after which means that your 2002 and 2004 tax returns will also be looked at. Generally the statute of limitations runs out three years after you filed your income tax returns.
However the rules are different when it comes to payroll and sales taxes.
One of our clients got a notice from the I.R.S. in December, 2005 asking about the 3rd quarter Form 941 for the year 2001! So obviously they waited more than 4 years to inquire.
Another client got a notice in January, 2006 from the state Dept. of Revenue about their 2002 sales tax figures that did not seem to match the Schedule C that they filed on their 2002 federal income tax return. Again the state waited more than 3 years to inquire.
So it seems that it would be good to save your records for at least 5 years to cover normal income tax, payroll tax, and sales tax audits. Pictured above is our room at the La Mansion Del Rio where we stayed on the Riverwalk in San Antonio, Texas. Henry (CEO)