With the 2017 tax season over, you probably already put you tax return behind you and put your tax refund to good use. But what about all that paperwork? How long to keep tax papers? Have you filed your 2016 documents away somewhere never to be gazed upon again? Perhaps the documents are still sitting in a folder on your counter or on top of your printer, or desk? Maybe you’ve even thought about tossing these documents. Find out why it might be a bad idea to toss any tax related documents away, at least right away. Here is some insight as to how long to keep tax papers.
How Long to Keep Tax Papers? Why?
The IRS can audit an individual tax return for up to three years after it is filed. In some cases, this period can be up to six years. If you’re like me, you never take any chances when it comes to tax papers and you still have returns and receipts from the late 90’s stashed away in your attic. So what do you need to keep? There are so many things to keep track of come tax time. Here are some things to keep in mind when cleaning up tax paperwork cluttering your space.
Paperwork for Business Taxes
According to the IRS, maintain employee records for as long as 3 years after they stopped working for the company. The agency also recommends keeping any records that show employee earnings for at least four years after they leave. Additionally, if your business is subject to the Fair Labor Standards Act and you engage in interstate commerce, then you should hold on to timecards for no less than three years. Even if your business doesn’t fall into this category, it’s a good idea for companies to retain records for several years. Also, make sure to hold onto all employment tax records for four years after the tax was paid or when it as due, whichever is longer. Furthermore, keep sales tax returns, as well as travel and entertainment records.
Paperwork for Individual Taxes
The recommendations are different for tax-record retention with regards to individual taxpayers. The key is to hold on to tax return paperwork until the statute of limitations (SOL) has run out. The SOL is typically is typically three years, but in some cases can be six. Essentially, you want to hold onto everything in case the IRS decides to audit you. If you toss everything and then get audited, you are not going to stand much of a chance against the IRS. Be sure to keep all records that support what you’ve reported on your individual tax return for at least three years, or for as much as six years if you understated your adjusted gross income by more than 25% (that’s a no no). If you ever claim a loss from a worthless security or bad debt, it is recommend you keep records for at least 7 years. Another important item to hold onto is copies of your actual tax return, which you should probably keep forever. In addition, keep your real estate records, receipts of your purchases and sales of stocks and bonds.
File Away, Not Throw Away
Yes, you probably don’t need to hold onto 20-year-old tax records and stash them away in your attic. Alternatively, you can scan and upload your documents to cloud storage such as Google Drive, Dropbox, or Box. Some of these services are free for a certain amount of storage. If you don’t want to scan your documents and instead you want to store them, you could just buy a couple storage boxes or make some extra room in your filing cabinet. Either way, good record retention practices save you a lot of trouble down the road for the little time you need to invest in keeping these documents secure.
For more information, you can go here to read on specifically what the IRS recommends.