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Don’t Shred Those Tax Documents Yet

You’ve completed your taxes for the year and now you’re wondering what to do with that pile of records, 1099s, receipts and bank statements. The experts agree, take the time to organize them and store them in a secure place. You may need to refer to them in the months or even years ahead if there’s an error on your return or if you need to file an amendment or are audited.

When organizing all that paper, it’s first important to know what records you should keep. The IRS recommends holding on to any documents related to the income you’re reporting or any deduction or credit you’re claiming, including:

  • Proof of income, including W-2s and 1099s, bank and brokerage statements, K-1 forms and spousal-support payment records
  • Bills and invoices, credit card statements, mileage logs, cancelled checks
  • Financial records related to real property, including paperwork from the purchase or sale of a home and all documents associated with the costs of buying, selling or managing rental properties
  • Investment records related to stock transactions, IRAs and other retirement accounts

If you’re not sure whether to keep a document or not, err on the side of caution and store it in your files. How long you should hang on to all those documents varies, depending on the action, expense or event which the document records. The IRS has the right to review all tax returns filed during the Period of Limitations, the time in which you can amend your tax return to claim a credit or refund or the IRS can assess additional tax. That period is typically three years from the date you filed for any given year. So, in general, a return and the related documents can be shredded three years after the date it was filed.

If you believe you may have under-reported your annual income by 25 percent or more, you should keep your return and related documentation for six or seven years. You should create digital copies of all your documents. That way, if the printed version is lost or destroyed, you will have a backup.

We are happy to work with you and your tax professional to help keep your financial records up-to-date and create a personal financial plan tailored to your habits and lifestyle. Call us today.

Don’t Shred Those Tax Documents Yet

by Marcus F. Johnson, CFPⓇ time to read: 2 min