After the relief of completing your tax filing, you should think about records retention. What do you do with your returns and your documentation?
The answer, of course, is to keep your tax records in a safe, accessible place. Here are some additional tips to make sure you have the records you may need in the future.
To keep it simple and to be safe, keep everything for six years.
According to the Federal Tax Code, you are required to keep copies of your tax return and all supporting documents as long as they may be needed for the administration of any provision in the law. Typically, that means for as long as the IRS has the right to assess additional taxes on your past returns, or you have the right to amend your return to claim a credit or refund (“the period of limitations”).
The IRS can go back for a three-year period. However, that time frame jumps to six years if you didn’t report income that you should have, and that unreported income is more than 25% of the gross income shown on your return.
If your tax return is fraudulent, or you fail to file a required return, there is no limit as to when the IRS can require you to provide the information.
Your important keep list:
- Income records, including W-2 forms, 1099 forms and bank statements.
- Deduction records, including invoices, receipts, cancelled checks and deductible interest paid on loans, including 1098 forms.
- Investment records, including brokerage statements, mutual fund statements, 1099 and 2439 forms and year-end IRA account summaries and deposit receipts.
- Home records, including original purchase price of your home. You may need this to account for gain, loss or closing costs. You may also want to hold onto proof of home improvements that may add value to your home.
Hopefully, efficiently retaining these records will be unnecessary, but if you need them, it will save you time, stress and even money.
So, file your taxes, keep your records and relax.