How Long To Keep Your Tax Records? 

As the 2023 tax season ends, you may wonder how long you need to retain your old tax returns and other tax-related information. If you have printed copies of your tax returns, you may wonder whether you can scan them. Retain reading to learn how long you should keep your old taxes and how to get them out of the way.

Neat, thorough, and well-organized financial files will help you file your tax return more quickly and avoid problems. Maintaining order after you’ve filed your return will be helpful if the Internal Revenue Service (IRS) queries your form.

Once tax season is finished, it’s tempting to shred all of your documents and move on to next year. However, disposing of your tax paperwork prematurely can result in financial implications because the IRS can audit you up to three years later. Similarly, taxpayers can obtain a refund that they missed within the last three years. You should maintain all tax paperwork for at least three years in case you are audited.

If you fail to report more than 25% of your income on your tax return, the IRS can look back up to six years. If fraud is confirmed, there are no restrictions. Depending on the requirements in your state, you may also be required to retain your state tax returns for more than three years.  

1. Documents You Should Keep 

For an individual tax return, you must save everything that supports the statistics on your return. You should retain any W-2 and 1099 forms you receive from employers and any 1099-B or 1099-INT tax records from banks, brokerages, and other investment organizations.

If you lost your work last year and got unemployment benefits from the government, save your 1099-G form showing the amount you received. If you’re itemizing your deductions, preserve the following: credit card and other receipts, invoices, mileage records, and canceled checks.  In case you’ve acquired or sold mutual fund shares, stocks, or other securities, you’ll need brokerage statements that show how much you spent on the investments and how much you got back when you sold. 

2. Rules For Tax Records Connected To Real Property

When you own real property (a house, rental property, autos, or collectibles), you should retain all tax documents for at least three years after selling the property and submitting the necessary tax returns. 

This may include, records for depreciation, amortization, or depletion deduction, all of which will affect whether you had capital gain or loss when you sell the property. When selling a home or disposing of property, your taxable gain does not always equal the difference between purchase and sale prices.

3. When to Get Rid of Tax Documents

While it may be tempting to clear out clutter, it is critical to wait until the statute of limitations has passed before disposing of tax paperwork. As a result, when the statute of limitations expires, and state and federal auditing is no longer possible (as described above), you can wave goodbye to old tax documents. It is vital to shred these records to reduce identity theft risk.

Remember that other institutions may require you to maintain your old tax paperwork. For example, lenders and insurance firms may request tax returns and financial records from more than three years ago. Before discarding your old documents, think about what else they might be helpful for.

4. What is the Best Way to Store Documents?

The best option to keep physical copies of tax records is in a fireproof safe. Retain other vital documents along with your tax records, likeyour house mortgage and insurance, your will or trust documents.

It’s also a good idea to tell someone where you keep the key to the safe. This way, if an emergency occurs, that person will know where to find any important documents to maintain your affairs in order.

There’s nothing wrong with keeping your records longer than the legal limit if it gives you peace of mind. Although many people preserve paper records, it is also advisable to convert them to electronic files and save them in the cloud.

Having two sets in case one gets destroyed is a good idea. Also, remember that your state may have its record-keeping standards; consult your accountant or the state tax authority. 

Finally, remember that you have three years to file a return if the government owes you money. If you still need to file a return by then, the money is sent to the United States Treasury.

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