To Keep or Not to Keep These Tax Documents…

Now THAT is the question!

Keeping tax documents is a question that many people do not ask because once the tax deadline has come and gone they are so ready to throw away those tax documents and throw a party! (Which I hope your CPA is invited too)

BUT don’t toss them just yet!

In reality, you should store your tax documents, even a copy of the year’s tax return,for at least 3 years.  There is some documentation, when it comes to retirement, that you should keep for even longer.

Tax documents consist of a copy of your return, 1099s, receipts, paperwork that supports your tax deductions, etc.; any documentation that supports your deduction/return. It’s important to keep these documents if you are ever questioned by the IRS after that year.

Three years is the rule of thumb suggested by the IRS for these tax documents. So if you filed this year (2018) then you should keep that documentation until 2021. Although as previously stated, there are some circumstances where you should keep your documentation for even longer. For example, when dealing with your retirement accounts, you should keep those records for at least seven years after the FULL funded amount has been withdrawn.

It’s important to keep these because the IRS has six years to impose any additional tax that is required, especially if more than 25% of your income was omitted from your return. 

And if you ever filed fraudulently, refused or forgot to file, I would recommend keeping those documents forever because the IRS request documents at any point for years to come.

When keeping or hosting those documents make sure they are in a safe and secure place. Whether you are physically keeping them in your home (in a drawer or safe) or backing them on your computer, there should be a security system.

If you’re backing them up online, a rule of thumb is to save them on a system that isn’t always connected to internet 100% of the time because it will diminish the chance of intrusion from hackers. For the records that you are disposing, shredding is ALWAYS the way to go. I would even recommend separating the shredded pieces in different garbage bins.

If you are operating a small business, it is important to have a record retention policy. This will serve as a written guideline to be adhered to at ALL times. A detailed discussion about the topic can be found in my book Straight Talk about Small Business in NJ (If you want a copy, click here) and I will be sure to send it over.



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