One of the most confusing aspects of taxes is tax records. How long is one supposed to keep these important records is often up for debate and most people do not bother saving them all.
The first thing that should be noted is that one should do more than keep their actual tax returns. It is just as important to keep your receipts and other documents like bank statements that support the things you have put onto your tax forms. One is really just as important as the other.
Audits do happen and in case they happen to you, it is important that you have all of the documentation that you need in a handy place at home. It is wise to consider starting a file either in a file cabinet or perhaps on a shelf or even in a drawer. Keep these important tax documents separate from other papers to avoid confusion and loss.
If you choose to file electronically online-as more and more people are beginning to do-you need to remember to request hard copies of these documents right away. They can often be mailed to you quite quickly.
IRS audits are not the only reason why it is important for people to keep good tax records. There is also divorce. Unfortunately many people do not stay married and when you do get divorced it can get ugly. Assets can be complicated to divide and having a good tax records with all of the appropriate documents on hand can be a real asset to you and your own personal finances.
If you own property or a business then it is a good idea to keep these tax records separate from your personal tax papers. A separate file will suffice. Be sure to keep all documents that you need and remember that there are different documents needed for different forms of filings.
Property records to keep for example are documents such as records of home improvements made over the years you have owned the home or property. These can affect many aspects of taxes, such as the value of the home and what is can or has sold for and your taxable gain. Mortgage statements are another important piece of documentation to keep on hand.
Forms such as W-2s must be kept as these are the forms that show the amount of money you have earned and the tax you have already paid on it. 1099 forms on the other hand show the money earned from other sources such as investments and interest. Both of these will be things needed to verify the information you have stated on your tax returns and they will be some of the first documents that the IRS asks to see in the case of an audit.
The bottom line is that the IRS has years to audit you. IF they fear there has been fraud committed on your tax returns they can audit you at any time, even if it is ten years later. You should keep your tax records for at least that long, many experts will recommend that you keep them indefinitely.
