You feel wholly free after completing your tax filing. It is like a heavy load taken off your shoulder but it is not yet time to celebrate. Tax professionals have advised taxpayers time to time that they should keep their tax return records as they will be used somewhere in the future by the IRS for auditing purposes.
Whether you keep the tax return documents in a file or a computer’s hard drive doesn’t matter much provided that they are safe and you can reproduce them when there is a need. People keep their tax records but have been asking what factors determine the duration over which they should be kept before being discarded.
How long should you keep your tax return records?
The tax pros have recommended that you should keep your tax records and any other attached documents for a period not less than three years from the date you filed them or the date your tax returns are due. This recommended period is applicable in many cases with few exceptions to be discussed later in this article. For instance, if you file your tax on date 1st February 2016 then you are expected to keep the then return records up to a date, not before 15th April 2017.
What tax documents should you keep?
As a taxpayer, you are supposed to keep your tax return with all its supporting documents and forms including Forms W-2s, 1099s, mileage records if you itemize, expense tracking, and other documents. Don’t be tempted to leave anything out!
What is the importance of keeping your tax return for three years?
Keeping your tax record for a period not less than three years is well spelled out in the IRS statute. According to the information therein, you are expected to file your claim for a refund within this period and each taxpayer is entitled to the same. Similarly, the IRS also has a period of three years to do auditing on your tax returns as filed by you just to find out if for one reason or the other you didn’t accurately report your income.
Are there any cases which require keeping your tax records for more than three years?
There some instances where you might be required to keep your tax records longer than three years. These rare exceptions include events where you are keeping tax forms when you want to hang your boots as with the case of IRA retirement accounts which takes seven years after your retirement for the account to be deactivated. Another exception is when you are filing claims for a worthless security or even bad debt deductions where you should also keep the tax return records for seven years. Additionally, when you depreciate, amortize, buy or sell a property, you are supposed to maintain the records until such a date when the property is disposed of. You should also take note that the term property does not only refer to land or buildings but also an asset in your possession.
There are also some cases where the IRS statute states for longer periods. For instance, if you intentionally or unintentionally leave out about 25% of your gross income, the IRS is given six years instead of three years to look into it. Also, if you inappropriately filed your tax and fails to file one at all, then there is no time limit and you should keep your tax records for as long as you live.
What should you do when disposing of your tax documents?
This moment is heartwarming but does not be over joyous. Check the documents once again, one by one, to ensure that you will not require them at some point in the future for other purposes. There are reported cases where some financial institutions require you to keep your tax return documents longer than what IRS dictates. If you are certain that you no longer need them, then dispose of them by shredding as they contain vital information which should remain confidential.
Which is the best way for you to adopt when storing your tax documents?
You need to store your tax documents in a safe place which is not prone to data loss due to fire or for other reasons. You can keep them together with your title deeds, car log books, your academic certificates, or any such sensitive document.
If you plan to keep your records for a little bit longer time and you don’t want your house to look like an archive, then you can convert them into a digital data and keep them in a cloud service such as google drive and Dropbox.
