These days we are fortunate to live in a world much less reliant on paperwork. Almost everything can be found online and file cabinets are becoming bare. As much as we live in the digital era, there are still some tax papers imperative to keep on hand.
There are several important reasons to retain tax paperwork. If you are ever audited by the IRS or learn of a deduction or tax break you could have claimed, you will need those documents. The IRS has 3 years to do an audit of your taxes. However, if you understate your adjusted gross income by 25% or more, the IRS is allowed 6 years to conduct the audit. If you file an extension, the 3 years begins from when the extended return was filed. Based on this, most would recommend keeping all documentation for 6 years.
There is, however, no time limit to when audits for unfiled returns or fraudulent returns can be done. Additionally, many recommending keeping your W-2 forms until your Social Security begin. You can very easily find that you have to prove your earnings to the Social Security office when the time comes. Having your W-2 forms as a record of your earnings will be critical as proof in that case.
Real Estate and Retirement Accounts
For any real estate and retirement accounts, the 3-year rule applies again. It is advised to keep your real estate records for as long as you own the property plus 3 years after it is sold. Likewise, retirement records should be retained for as long as you’re receiving payouts plus 3 years.
The IRS website shares its recommendations on the topic as well. They recommend that you should keep your records until the period of limitations, or the time in which you can amend your return runs out. For more information visit the IRS Website.
So what really is the safest bet? Keep everything for at least 6 years and in the case of real estate and retirement accounts for 3 years after the gain is realized. After 6 years the choice is yours. If you believe your tax returns to be clean, it should be fine to keep just the return itself and the W-2s. But as many experts debate, how much room do those files really take up? Save yourself a future headache and save those files…..forever.
If you have any questions or concerns regarding your past tax returns, we encourage you to reach out to us here.