Tax Retention Guide

personal tax preparationHow long should I keep my tax records?

Now that you’ve finished your personal tax preparation for the year, there’s one thing left to do. We all know that we have to hold on to those tax records and supporting documents. But, for how long?

According to the IRS, you should keep your personal tax preparation records and documents until they are no longer eligible for audit. That means three years for most filers (four, for some Californians) from the date of filing or the due date of the return, whichever is later. So, for example, if you filed your 2013 tax return on Tax Day, April 15, 2014, the IRS suggests that you keep those returns and records until April 15, 2017.

However, I suggest that you keep all returns and supporting documents for at least seven years. Why? The three (or four) year window applies only to what the IRS considers to be “good-faith errors.” If they decide that an error does not meet that description, they can challenge you. And if they do, the burden of proof is entirely on you. That’s why, to be on the safe side, I advise my clients to keep those records longer. My top concern is protecting your hard-earned money.

Is it inconvenient to keep seven years’ worth of paper personal tax preparation records and documents? With GPS, there is an easier way, that won’t clutter your home with piles of files. For the most complete protection with the least trouble, you can keep your tax returns and records in electronic format for easy access. When you store the information electronically, you can keep personal tax preparation records well beyond seven years, and not have to worry about storing paper copies. As a client of GPS, you have access to the tax returns and records we prepared through our client portal.

There are some exceptions to the three/four year window for audit or additional assessment. For retirement accounts such as IRAs, you should save all tax forms until seven years after the account is gone. If you have filed a claim for a loss of worthless securities or a bad debt deduction, again, you should keep those forms for seven years. And, if you amortize, depreciate, or buy or sell property, you should keep property records until the statute of limitations expires for the year in which you dispose of the property. Remember, property is not just land or buildings; it includes stocks, office equipment and other assets.

If you misrepresent your gross income by more than 25%, the IRS has six years, not three, to assess an additional tax. And, if you fail to file, or your return is found to be fraudulent (both very, very bad ideas!), the statute of limitations never expires. The IRS can come after you in ten years, or forty years.

What about my employees’ records?

If you have any employees, including household employees, you must keep your employment tax records for at least four years after the date that payroll taxes become due or are paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms. That’s another reason why I suggest keeping all records for seven years, or using our electronic records storage option.

I thought I’d saved everything, but now I can’t find anything!

A few minutes now can save you a lot of stress later. Take the time to keep your personal tax preparation records organized.

Everyone has their own system, but generally, arrange them by year. Be sure to store them in a safe place. A fire-proof safe is a good idea, or off-site storage.

To save space, you can scan your records and store them electronically. Back up your personal tax preparation electronic files, just as you (hopefully!) back up all your computer files.

The most important thing is to ensure that your scanned or electronic receipts are as accurate as your paper records. You must be able to index, store, preserve, retrieve, and reproduce the records. In other words, you need to have your personal tax preparation records organized and be able to produce them in a hard copy form if needed.

It’s been seven years. Can I throw all these old personal tax preparation records out?

Not so fast! Before throwing your old returns away, check to be sure you don’t need to keep them for another reason. For instance, certain creditors and even some insurance companies may require you to keep records longer than the IRS does.

If you do decide to get rid of tax documents, make sure to shred them thoroughly. Those documents are full of personal information that can be used for identity theft. You should never toss anything with account numbers and other personal data without shredding it first.

Resources

Become a Paperless Guru

Become a Paperless Guru

Apple SmartVault offers an iPhone & iPad app that allows you to take a picture of a receipt or document with your smartphone's camera and upload it to your vault. Features of the Virtual Bookkeeping SmartVault App include:Get and send links...
Helpful Tax Related Websites

Helpful Tax Related Websites

Federal Tax Internal Revenue Service IRS EFTPS Online Estimated Tax Payments Energy Credits Foreign Currency Converter States Directory of State Tax Departments New York State NYS Department of Taxation and Finance NYS Online Estimated...
Small Business Tax Calendar

Small Business Tax Calendar

Do you need to know the important filing, deposit and record keeping dates in any given month during the year? Below is a link to the IRS's Small Business Tax Calendar. You also can view the full year's important business tax dates in IRS Pub. 509 .Small...
Tax Due Date

Tax Due Date

The link below will take you to the IRS website where you can view important due dates. You can see all events or filter them by monthly depositor, semiweekly depositor, excise, or general event types.IRS Tax Calendar
Tax Rates

Tax Rates

SingleMarried Filing JointMarried Filing SeperateHead of Household
Tax Retention Guide

Tax Retention Guide

How long should I keep my tax records? Now that you’ve finished your personal tax preparation for the year, there’s one thing left to do. We all know that we have to hold on to those tax records and supporting documents. But, for how long?According to th...
Where's My Refund?

Where's My Refund?

Use the links below to determine the status of your Federal refund and filing status of your amended return. For information on the status of your state refund, please refer to that state's website. Most states offer a similar "where's my refund?" link...