The silent buzz of calculators and the nervous striking of computer keyboards usher in the end of tax season each year. As taxpayers across the country make the last minute rush to the post office on April 15th, the Internal Revenue Service gets busy reviewing returns, issuing refunds and collecting tax payments. Once tax season ends, turn your attention to keeping and maintaining files and documents related to your tax returns.
Reasons for Saving Taxes
If the Internal Revenue Service comes knocking, you want to make sure you have all the necessary documents, including prior years' tax returns and supporting documents. The Internal Revenue Service may choose to conduct an audit to verify information provided in your tax return. You may need to amend a prior year’s tax return because of circumstances beyond your control, including inaccurate W-2s provided by your employer or simple accounting errors made on the return.
Keep tax returns and any supporting documents until the statute of limitations runs out for that specific return, per Internal Revenue Service guidelines. Generally the statute of limitations runs until you can no longer amend the return or until the IRS can no longer assess tax. The statute of limitations does not include the filing year; it starts after the return was filed or on the due date, which for most is April 15th.
Play by the Rules
At minimum, file away your taxes and supporting documents per the guidelines established by the Internal Revenue Service. Keep most tax returns and supporting documents for three years. If you neglected to report income in excess of 25 percent of your reported income, you will need to file an amended return and keep all records and documentation for a minimum of six years. Claiming a loss related to worthless securities requires saving your tax return and supporting documentation for seven years. Property owners should keep tax records until they sell or dispose of the property. This will allow you to accurately calculate profits or losses related to selling or disposing of the property.
While adhering to Internal Revenue Service rules and guidelines when it comes to saving your tax records will keep you in the clear should a tax issue arise, consider other reasons for keeping your tax returns for longer periods of time. Applications related to securing a loan for a house, automobile or business purchase may require details commonly found on your tax returns, including adjusted gross income. And while nobody likes to think about the possibility of death, saving your income tax records properly can provide important information for the person left in charge of your estate, such as your spouse or your appointed executor.
- tax forms image by Chad McDermott from Fotolia.com