It’s a common occurrence that the IRS and state revenue departments select returns for review. If your return is the one that gets selected, you need to be prepared.
That’s why we’ve put together this simple guide to walk you through what to keep and what not to keep for your post tax-filing records.
1. Don’t trash your 1040 forms. Make a copy of them to keep on file. You will need this if there are earning mistakes that need to be corrected or if the IRS asks you to prove that your taxes were filed.
2. Keep records of supporting documents. The IRS recommends that taxpayers keep supporting tax return documents for at least three years. This includes W-2s, 1099s, bank statements, receipts for business expenses, etc. Having these supporting documents ensures that you are accurately reporting your income and expenses on your tax return, and will help you if you are ever audited.
3. Keep all of your property records on file. To prove your cost/basis and gains/losses for property that you own (your home, investment properties, rental properties) all of the related documentation needs to be held onto for at least three years after you’ve sold or disposed of the property.
4. Be aware of record retention requirements for state and other records. While the federal requirement for standard returns is three years, the state and other records may have different guidelines. Examples include:
- Federal requirements for certain situations such as bad debt or worthless securities (seven years) or unreported income (six years).
- The State often requires that records are kept on file for 6 months to a year longer than federal.
- Banking, insurance, or estate requirements can vary.
- Fraudulent returns have no audit time limit.
5. Be organized! Don’t make an audit more stressful than it has to be by being disorganized with your records. Here are a few tips to help you organize your files so you’ll know exactly where everything is:
- Always file your records by the year.
- Follow the flow of your 1040 form and organize your records within the files to match that flow.
- Scan your records and keep a digital copy.
- Never throw old documents in the trash. Always shred them to protect your confidential information.
You may run across records where you’re unsure if it needs to be kept or not. When in doubt, keep the document unless it’s something that can easily be replaced.
Have questions? Call us at 757-546-2870. At Minton CPAs & Associates, we’re always happy to help.