Every year you dutifully file your taxes, put them away in a drawer, and wait for your refund. You probably never think twice about how long you need to keep those tax returns until the drawer starts getting too full to hold the new set of returns. So, how long do you need to keep your tax returns?
You probably don’t pull those old tax returns out very often, but there are times when you will need them. Should the IRS choose to review a return, it is important that you have a copy. You might need them at other times, too, like if you are applying for a mortgage or other bank loan.
A good rule of thumb is to retain your tax returns at a minimum for the length of time that the government is legally permitted to audit them. This is known as the statute of limitations for audits. The federal government has a three year statute of limitations for auditing your return. That three years runs from the date that the return was actually filed, or three years from the April 15 deadline if the return was filed prior to the deadline. The statute of limitations on state returns varies by state, so you should check with your state to determine the period of time. Some states legally have as many as five years to perform an audit, so don’t assume that the statute in your state is the same as the federal statute.
In addition to your actual tax returns, you should keep any supporting documentation. This includes:
- W-2 forms
- 1099 forms
- Records of charitable donations
- Receipts for tax-deductible expenses
- Real estate records
- Information on business assets
- Stocks and bonds
Records relating to assets should be maintained in your possession for the duration of your ownership of the asset, and then for an additional three years after the asset is sold. You will need these records after the asset is sold in order to determine cost basis and gain or loss.
If you are self-employed, you should keep all of your accounting records, profit and loss statements, and bank statements.
You can organize your tax documents in several ways. First, you can stick with the traditional system, and make paper files. Documents should be separated by year, keeping the returns and their supporting documentation in together in a folder. You could also create a box or accordion file for each tax year. Another option is to scan the documents and store them on a flash drive. This will minimize the amount of physical space that the records occupy.
Before you throw away old tax documents, check these things:
- Check your Social Security statement, and make sure that the record of your earnings on the Social Security statement matches the income reported on your W-2 and tax return. Mistakes do happen, and you can have an error on your Social Security statement corrected if you find it.
- Check the date that your tax return was filed, and make sure that at least three years have passed before you throw it out.
- Shred your tax and financial records before getting rid of them. No matter how old they are, you don’t want anyone gaining access to your financial records. Shredding them is easy and provides you with a measure of security.
These tips should help you to organize your tax records. If you need advice on tax accounting, or business matters, call the professionals at Acceler8. We are your source for business advice, and you can count on us to guide you through all of your tax and business matters.