Filing a tax return often means sorting through mountains of paperwork -- paperwork that can take up lots of room in your filing cabinets. So you might be gearing up to shred those documents to pieces once your return is complete and in the hands of the IRS.
But not so fast -- it's imperative that you retain those key documents in case the IRS has questions about your return or figures that it needs to verify. In fact, you'll need to prepare to hang onto your tax documents for a solid three years -- if not longer.
Don't toss those tax documents yet
The IRS is allowed three years from the time you file a given tax return or its respective due date -- whichever is later -- to come back and audit it. As such, you should make sure to maintain any and all related records for that much time at a minimum.
Doing so serves as protection for you as well. That's because you get up to three years to amend a tax return you previously filed if you discover an error on your part. And sometimes, those errors can work against you. For example, if you realize you failed to claim a credit or deduction you were entitled to, it's in your best interest to file an amended return. Doing so could decrease your tax bill or increase your refund. But if you don't have the right documentation on hand, you won't know what information to put on that return.
Furthermore, while most filers can generally get away with tossing tax documents three years after the date they file a given return (or its due date), in some cases, the IRS is allowed to go back six years for an audit -- namely, if you failed to report more than 25% of your income. Not only that, but different states have varying statues of limitations for audits, so depending on where you live, you might need to retain key documents for longer than the standard three-year period.
What tax documents must you keep?
Be sure to keep documents that back up the figures you put on your tax return. This means retaining all W-2s, 1099s, mortgage interest statements, and other items you might be claiming as deductions, whether it's business equipment or charitable contributions. Furthermore, be sure to retain copies of your actual filed returns.
If you don't have the physical storage for all of that paperwork, scan those key documents and retain an electronic file. Your best bet in this regard is to have multiple copies of that file in case something gets corrupted or goes awry. For example, you might keep a copy in your email, another copy on a flash drive, and perhaps another copy on a cloud backup site. In fact, even if you do have the capacity to store your physical files at home or in another location, it still pays to have an electronic copy. Paperwork can degrade over time, and having an electronic copy also ensures that your tax information stays safe in the event of a fire, flood, or other property damage.
Most people who file their tax returns want to send them off and forget about them, and that's understandable. Just don't make the mistake of tossing your tax paperwork too soon -- it's a move that might come back to haunt you in one way or another.