How Long Should I Keep My Tax Returns?
As I go through my occasional routine to file my important mail and documents, I realized that the most space-consuming files were my tax documents.
Since I am relatively new to the real world, I only have four years of tax returns. I was still in college so my tax situations weren’t too complicated – easy enough for me to file on my own with TurboTax. Still, I can’t wait to dispose of them to rid myself of clutter.
Advice From the IRS
Common sense tells me that I should hold on to my tax returns as long as possible – ideally, forever. Sure, the IRS has a “period of limitations” that would allow me to purge what I consider to be paper waste but the advancement of technology makes storage of financial paperwork such a breeze.
The period of limitations is basically the time frame in which filers can makes changed on tax returns to claim a credit or refund, or that the IRS can come knocking for additional tax .
Just because the IRS says they won’t hunt me down after I have cleared the period of limitations, it doesn’t mean you won’t need them for non-tax purposes. Thanks to a solid backup system. I can have multiple digital copies of my tax documents within minutes. I don’t believe someone can have too many records. Plus, digital scans reduces the clutter.
According to the IRS. apply the following rules for your records:
- If you filed a fraudulent return, keep your records forever.
- If you did not file a return, keep your records forever.
- If you do not disclose income that should
have been reported and it comprises more than 25% of the gross income on your tax return, keep records for 6 years.
- If the above three situation do not apply to you and you own addition tax, keep records for 3 years.
- If you file a claim for a credit or refund after you fill your return, keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax (whichever is later).
- If you file a claim for a loss from worthless securities or bad debt deduction, keep records for 7 years.
- All employment tax records should be kept for at least 4 years after the date that the tax becomes due or is paid (whichever is later).
Important Note: Be aware that a tax return is created by the information provided in tax documents (e.g. W-2, 1099s, paycheck stubs, receipts, statements, and etc.). An audit by the IRS would require verification of these tax documents that rendered a suspicious tax return. Therefore, it seems logical that tax documents are more important than tax returns.
The Fate of My Tax Paperwork
The IRS suggestions seem somewhat tedious and mind-numbing. So, my simple solution is to:
- Keep tax returns and tax documents for 7 years.
- Make digital copies of all tax returns and documents and (try to) keep them forever.
- Destroy original paper tax returns and tax documents after 7 years.
Honestly, with the help of a scanner, there’s no reason we can’t keep copies of any paperwork in a combination of flash drives and external drives.Source: www.realmofprosperity.com