When tax season ends, it can feel like a lot of weight has been lifted off your shoulders – the opportunity to breathe out and relax (until it starts again next year!). But before you get all the tax issues out of your head, there is one last task you must complete.
- 1 Why you should keep all your tax records?
Why you should keep all your tax records?
It is very important that you carefully organize and keep all your tax records and documentation, including a copy of your tax return.
The IRS can check you
If you have ever been selected by the IRS (Internal Revenue Service) for an audit, you will need access to your tax returns and the documents you used to complete them. If the IRS checks you, they will usually review your reports from the previous three years, so it is good to have copies of the reports you have filed over those years on hand. You will also need W2, 1042-S, 1099 documents, receipts, or any proof of your tax deductions or credits that you may have claimed on these returns.
You may need to make changes to your tax return.
After you file your tax return, you may find that you need to correct it because of a mistake or tax credit you should have claimed. In such cases, you will need a copy of the declaration that you filed along with all documents (such as W-2, 1042-S, 1099) and supporting information (such as receipt and extracts) that you used to prepare the declaration.
If you decide to apply for a US residency
Correct tax reporting will also be helpful if you decide to apply for permanent residence (green card). During the application process, you will be required to provide evidence of continued compliance with US tax laws by attaching your submitted tax returns.
They can help you prepare future tax returns.
Tax returns you filed in previous years can help you prepare future tax returns. For example, you may need to refer to previous figures such as refunds, withholdings, taxes payable, etc.
How long should I keep my tax records?
According to the statute of limitations set by the IRS, the basic rule is that you must keep all important tax documents for at least 3 years after the filing date. In other words, if you filed a return in 2021, you must keep all tax documents related to it until 2024.
In some cases, you may need to keep your records for more than three years. For example, you must keep tax forms for retirement accounts such as an IRA (individual retirement account) for seven years after the account is completely destroyed.
In addition, if you buy or sell real estate, you should keep records of the property until the statute of limitations expires for the year in which you manage the property.
When do you need to keep tax records longer?
In some cases, tax fillers must keep their documents for six years.
For example, if you are claiming less income and is greater than 25% of the gross income of your tax return, you will need to keep these reference records for six years.
According to the IRS, you will need to keep records for seven years if you are applying for a bad debt or impaired securities deduction.
There are financial documents that need to be kept even forever. For example, any records that relate to fixed assets such as the purchase or sale of a home or stock.
You must also keep records forever if you filed the wrong tax return or if you didn’t file a tax return at all.
How to keep tax records?
The law does not require a special accounting system for all taxpayers. You can keep records in any way convenient for you. If you plan on keeping records for a long time, you should consider scanning documents and backing up your files.