Well, tax season is officially OVER! It has been a crazy last few weeks, but we made it! Now that all of the headache is over for this year, the last thing you want to think about is looking at another piece of tax paperwork! However, you should be holding on to those tax returns and other tax documentation. Today, we’ll talk about what you should be holding onto and for just how long.

So just how long should you hold on to tax information? Should you save every single piece from the dawn of paperworktime? NO! Having all of that paperwork just sitting around in boxes is not only a fire hazard – it’s also an identity thief’s playground. Tax returns and supporting documentation contain TONS of personal information which, if placed in the wrong hands, could lead to identity theft. If you are going to hold on to tax returns, make sure to store them somewhere SAFE. You could use a fireproof safe that is secured with a key, or, if you would prefer to get rid of the huge stacks of paperwork, you could “go paperless”. You could opt to scan your tax returns and supporting documentation into your computer and save them in a few places (the Cloud, computer files, flash drives, etc.).

Whichever route you choose, make sure you are saving your paperwork for at least the statute of limitations period! Plus, keeping previously filed tax returns is always a good idea. They provide a great point of reference for questions or computations if you need to file an amended return. Let’s talk about the important documents and the recommended holding time for them.

As previously mentioned, all tax documents should be held on to for at least the length of the statute of limitations. This is that period of time during which you can amend your tax return to claim either a credit or a refund or that the IRS can assess the return for additional taxes owed. However, the statute of limitations varies depending on the tax return in question.

Generally speaking, as a common rule of thumb, you should keep all tax documentation for at least 3 years after the return was filed or 2 years after the tax was paid, whichever is longer. However, there are certain situations in which you should keep the information for longer, or even indefinitely. Let’s talk about a few of these situations.

If you claimed a loss due to worthless securities or a bad debt deduction, you should keep the tax filings and supporting documentation for at least 7 years. This lengthened period is due to the longer statute of limitations in which the IRS can audit those tax returns and question the worthless securities or bad debts. If you hold on to all supporting paperwork to corroborate the information listed on your return, should an audit arise, it will go much quicker and more smoothly.

If you think that your income was grossly under reported (by 25% or more), you should hold on to those tax returns and supporting records for 6 years. This is the time frame in which the IRS can examine and choose to audit your filings for that particular year. Make sure to keep any and all supporting documents in case an audit should arise.

If you’re a business owner, hang on to those employment tax records for four years after the return is filed or the tax is paid, whichever ends up being later.

Finally, if you failed to file a tax return or filed a fraudulent tax return, you’re going to want to hang on to any records or supporting documentation indefinitely. That’s right, I said FOREVER. That’s because, technically, the IRS does not have a statute of limitations in such cases. Although the likelihood of an audit for a fraudulent tax return filed 20 years ago is very unlikely, it could still happen. You’ll also want to make sure you have documentation or reasoning for WHY you didn’t file taxes. Having this information handy will greatly help you should the IRS flag you for an audit.

Here at Wealth Builders CPAs & Consultants, we specialize in all things taxes. From regular tax filings to tax issues, we’ve got you covered. If you have questions regarding your taxes, give us a call today to schedule your free consultation!

Don’t miss a thing! Keep up to date with all things financial. Follow us on LinkedIn, Twitter, and Facebook!

If you haven’t already, sign up for our FREE quarterly newsletter and weekly tax tips email. Both are full of helpful information to help you reduce your tax liability and increase your cash flows. Sign up today!

Bell, Kay. “How Long Should You Keep Your Tax Records?” NerdWallet, 14 Apr. 2017, www.nerdwallet.com/blog/taxes/how-long-keep-tax-records/.

“How Long Should I Keep Records?” How Long Should I Keep Records – Internal Revenue Service, www.irs.gov/businesses/small-businesses/self-employed/how-long-should-i-keep-records.