You’ve filed your taxes; you’ve received your returns – so now what? Don’t forget that record retention is an important part of the tax process. Here’s our take on what to keep and what to dump.
The IRS says that you are required to keep your tax information that supports any income or deductions for the entire “period of limitation.” That means you need to retain returns and supporting documentation for as long as the IRS has to audit your tax return. Typically that means three years.
The IRS’ right-to-audit grows to six years if you failed to report income more than a certain percentage of your gross income. And if your tax return is fraudulent, or you fail to file a return at all, there is no limit to how far back the IRS can require you to provide the information.
To play it safe, simply keep everything for six years. But tax returns aren’t the only important documentation that you should keep around. Here’s my keep list:
Income records, including W-2 forms, 1099 forms and bank statements.
Expense records, including invoices, receipts, cancelled checks and deductible interest paid on loans, including 1098 forms.
Investment records, including brokerage statements, mutual fund statements, 1099 forms, 2439 forms and year-end IRA account summaries and deposit receipts.
Property and home records, including original purchase invoices, closing statements, insurance records and proof of payment. You may need 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. Keep records for both current and past properties until the period of limitations expires.
Keep your records in a safe, accessible place. If you store them electronically, be sure to keep a backup file in a safe deposit box or other secure place. Hopefully, efficiently retaining these records will be unnecessary, but if you need them, it will save you time, stress and even money.
Please consult your tax advisor for information about your particular situation. For more information about records retention, visitirs.gov.