The Ultimate Guide to Tax Record Keeping: How Long Do You Need to Keep Tax Information?

The Ultimate Guide to Tax Record Keeping: How Long Do You Need to Keep Tax Information?

Tax season is upon us, and as a responsible taxpayer, you must keep certain tax records for a specific duration. You wouldn’t want to throw away important information that could come in handy during an audit or investigation. As such, this article seeks to provide you with the ultimate guide to tax record keeping, specifically how long you need to keep tax information.

What Records Should You Keep?

You might be wondering which tax records to keep and which ones to discard. Here is a list of primary documents that you must store safely:

– Tax returns and schedules: You should keep these for at least three years from the due date or the date you filed your taxes.
– Employment records: This includes W-2 forms, pay stubs, and other employment-related documents, which you must keep for at least four years.
– Investment records: You should store these for as long as you own the asset and an additional three years after selling them.
– Business records: If you operate a business, you should keep all records of income, expenses, and deductions for at least six years.
– Real estate records: This includes deeds, mortgage statements, and property tax records, which you must keep as long as you own the property and for at least six years after selling it.

Why Keep Records for a Specific Period?

Keeping tax records for a particular duration is not an arbitrary decision. The Internal Revenue Service (IRS) has established these periods to ensure that taxpayers have relevant information during an audit or investigation. For example, if you file for a loss on your tax return, the IRS can investigate your tax records up to six years after you filed your return to ensure that the loss is genuine.

What Happens If You Don’t Keep Records?

If you don’t keep tax records or discard them before the recommended duration, you might face penalties and fines from the IRS. You will also find it challenging to defend against an audit or investigation. Additionally, if you need to amend your return, you won’t have supporting documents to make the necessary changes.

Where to Keep Tax Records?

Now that you know which documents to keep and the recommended duration, it’s essential to store them safely. You have two main options: physical storage and digital storage. Physical storage can be in the form of a filing cabinet or locked drawers, while digital storage can be in the form of cloud storage or external hard drives. Whatever storage option you choose, make sure it’s secure and accessible only to authorized persons.

Conclusion

As a responsible taxpayer, you have a legal obligation to keep certain tax records. Keeping these records for the recommended duration ensures you have relevant information during an audit or investigation. It also protects you from penalties and fines imposed by the IRS. Therefore, it’s essential to know which documents to store and the recommended duration, as well as where to store them safely. By following these guidelines, you’ll stay on the right side of the law and avoid any unnecessary legal troubles.