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The filing deadline for 2014 tax returns is April 15, 2015. Because the Internal Revenue Service (IRS) can audit tax returns for up to three years after the tax filing deadline, you should plan to keep your tax returns from 2012, 2013, and 2014 after this year’s tax filing deadline. In most cases, you can safely discard your returns from 2011 and earlier. However, If you are self-employed or feel that you have a complex tax situation, it is wise to keep your records for up to six years. That is how long the IRS has to audit you if it suspects that you underreported your income by more than 25 percent. The longest you should need to keep a paper copy of any tax return is seven years, but this only applies if you claimed a deduction for worthless securities at any point since 2008.
What to Keep in Addition to Your Tax Returns
According to the Kiplinger Report, there are several documents you should keep in addition to your actual tax returns. These include:
W-2 wage reporting forms from your employer,
1099 miscellaneous income forms for any freelance work,
records of interest earned, receipts and cancelled checks to prove charitable contributions, dividends, and capitals gains distributions.
You may also need to produce proof that certain deductions & exceptions are legitimate. These include money you withdrew from a Health Savings Account (HSA) for eligible healthcare expenses or a 529 College Savings Account to pay higher education expenses for yourself or a dependent. The Kiplinger Report also advises taxpayers who have yet to file their 2014 tax returns to keep documentation proving that they have health insurance or that they qualify for an exemption.
When It’s Safe to Get Rid of Supporting Documentation
Tax experts typically advise American taxpayers to hold onto anything they think they may need for documentation for at least one year. However, since the IRS typically audit you going back 3 years, R&G Brenner advises you keep your supporting documentation for 3 years as well. After that time, it is safe to dispose of bank statements, cancelled checks, payroll stubs, statements from your 401K or other retirement plans, and monthly mortgage statements. When you receive settlement reports at the end of the year, compare the figures with the records you already have. If there is a discrepancy, be certain to notify the sender so you can receive a corrected statement.
Scanned Records and Receipts Are Acceptable
While there is a fair amount of records that you should retain, you can save space in your home or office by scanning them and storing them electronically rather than keeping a hard copy. (You should then shred the hard copy to ensure that no one can gain access to your private data.) The IRS has given taxpayers the right to file scanned documents ever since it passed the Rev. Proc. 97-22 in 1997. If you are audited, you simply have to print out a copy of the electronically stored document and submit it to the IRS. However, make sure that you come up with a good indexing and filing system so you can produce the records quickly if necessary.
Taxes are complicated, and it’s tempting to just dump the whole stack of papers once you’ve filed your return, but it’s important to hang onto the important documents, at least for a while. If you have questions about filing your taxes, what to keep and what you can toss, it’s never a bad idea to consult an R&G Brenner tax professional.