With tax season right around the corner, many tax filers have questions about how they should store their tax return documents as well as when is the right time to shred them. Follow these tips to keep your tax returns organized in case you are questioned by the IRS, as well as preventing them from getting into the wrong hands.
**THESE ARE GENERAL GUIDELINES. ECOSHRED recommends that you consult your CPA and/or legal advisors for Record Retention Guidelines to confirm requirements.
Tax Documents To Hold On To
While the IRS does not mandate preserving old tax documents in any particular way, they do urge taxpayers to keep them organized and in a safe place. All documents associated with your tax returns should be kept for a certain amount of time. These documents include income forms (W-2’s, 1099’s, bank statements, etc.), expense tracking (invoices, receipts, mileage, etc.), investment & retirement account statements, healthcare coverage, and any property purchase documents.
How Long Should You Hold On To Tax Documents?
The rule of thumb is that all tax return documents should be held on to for at least three years from when you filed or the due date, whichever is later. This is tied to the IRS statue of limitations, which states that you have three years to file a claim for a refund you are entitled to, and the IRS has three years to charge additional taxes for misrepresented reported income. The exceptions to the three years rule is seven years for claims for loss from worthless securities or bad debt deduction, and six years if you omit more then 25% of your gross income from your return. Finally, if you are suspected of a fraudulent tax return, there is no statute of limitations, meaning the IRS can come after you at any time.
Storing vs Shredding Tax Return Documents
These time frames deal with accompanying documents, and not the actual filing itself. Form 1040’s should be held on to forever, and can be converted into digital form and stored on a computer or hard drive. However, make sure to password protect the PDF’s to keep them secure, as tax returns contain sensitive information that identity thieves can use. Even better, upload them to a cloud service such as Dropbox and use a secure password for the account. If you prefer hard copies, use a fireproof safe and keep all documents in folders labeled appropriately and in order. If after three years you decide to dispose of your tax documents, make sure to shred them so that they do not end up in the wrong hands. ECOSHRED provides tax return and secure document shredding for all of NJ – Get a quote to protect your sensitive tax information.