The Arizona Department of Revenue (ADOR) reminds taxpayers to keep well-organized records and to toss old documents securely.
Maintaining a dedicated folder for tax-related documents is a good place to start. It makes it easier to prepare your tax return and it helps if you are audited or receive a notice.
The statute of limitations for tax purposes refers to the time period during which a taxpayer can file a tax return and receive a refund or file an amended tax return. It also governs the amount of time that ADOR can issue an assessment for a tax deficiency. You must keep records, including receipts, W-2s, 1099s, and other documents relating to an income source, deduction, or credit, generally until the statute of limitations expires. ADOR provides the following specifics:
Statute of Limitations for Tax Returns
- Transaction Privilege Tax – Keep records for 4 years from the due date or when the return is filed, whichever is later.
- Withholding Tax – Keep records for 4 years from the due date or when the return is filed, whichever is later.
- Income Tax – Keep records for 4 years from the due date or when the return is filed, whichever is later.
- Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep employment tax records for at least 7 years after the date that the tax becomes due or is paid, whichever is later.
- Corporate taxpayers with net operating loss carryovers may need to keep records for up to 20 years.
For income and withholding tax, if tax returns have not been filed, the statute of limitations may be up to seven years.
If a taxpayer omits 25 percent or more of gross income, gross receipts, gross proceeds of sales, or Arizona adjusted gross income, the tax may be assessed at any time within six years after the return was filed. This applies to individual income tax, corporate income tax, and transaction privilege and use tax, but not to withholding tax.
For transaction privilege tax there are no limitations to assess tax when a business files a fraudulent return or when they don’t file a return.
Period of limitations for refund claims:
4 years – For filing a claim for credit or refund, the period to make a claim generally is 4 years from the date you filed the original return or the due date if you did file for the tax year, whichever is later. Refer to A.R.S. § 42-1106.
7 years – For filing a claim for credit or refund relates to an overpayment on account of the deductibility of a debt as one that became worthless, a loss from worthlessness of a security, an erroneous inclusion of an amount attributable to the recovery of a bad debt, prior tax or delinquency amount due to an adjustment of a bad debt deduction or a loss deduction from worthlessness of a security, the time to make a claim is 7 years from when the return was due.
For more information on the Statute of Limitations, see Arizona Revised Statute (A.R.S.) § 42-1104. Additional expectations to the normal statute of limitations, the Internal Revenue Service (IRS) audits, waivers from the IRS or ADOR, etc.
Business Record Keeping
If you’re in business, there’s no required bookkeeping method you must use. However, you must keep detailed records with all source documentation. ADOR suggests performing self-audits and compliance checks periodically.
Before You Toss Records
After your documents are no longer needed for tax records, check to see if you must keep them longer for other purposes before tossing them.
When they are no longer needed for any purpose, securely shred tax documents to avoid identity theft.
And consider updating your contact information with the Department as a worthwhile investment of time and effort. You want to be sure that ADOR can contact you in case of questions or discrepancies.
As always, for questions, contact your R&A advisor.