How long you should keep your tax returns, and supporting documentation, is an issue of much debate in the personal finance world. Some people say seven years, some people say keep it forever, and some people say it isn’t worth the space. Ok well most people probably don’t say it isn’t worth the space but really how long are we supposed to keep this crap for. I just looked in my cabinet and I have returns from 2000-2008, that is eight years. Of course further inspection shows I really only have all the documents since about 2002 or 2003 and just returns through 2000. Looking at this mess I wondered how long do I need to keep this crap. Seriously that is all it is to me is stuff that should be shredded and recycled. Giant wastes of paper sitting in a drawer taking up space. Unfortunately the IRS doesn’t agree with my assessment so lets look at what they have to say about the matter.
Maximum Retention
According to the IRS the maximum amount of time you should hang on to any tax related document is, well forever actually. If you file a “Fraudulent return” or don’t file a return the IRS says you need to keep you records indefinitely. That means forever folks. Of course if you are filing fraudulent returns it probably isn’t going to help if you kept the records to prove it was fraudulent.
The Real Deal
I am assuming you are all honest people and aren’t trying to cheat the system. There are several different scenarios that affect how long you should keep your records on hand. According to the IRS:
- Keep all employment records for at least 4 years after the tax is due or paid, whichever is later
- Keep records for 7 years if you file a claim for worthless securities or bad debt.
- Keep records for 6 years if you fail to report income and it is more than 25% of your gross income shown on your return
So What Should You Do?
If you are filing returns and not doing it fraudulently the maximum amount of time the IRS thinks you should hold on to your documents is 7 years. Odds are that is going to be beyond what you need to do for most people so why not just stick with it and hold them for 7 years. That way if the IRS comes knocking on your door you are covered back through 7 years. At the very least keep your records for 4 years to meet the requirements for employment records.
I would love to hear from everyone on how many years of records they currently have and if they think they would pass an audit, leave me a comment and let me know.
Tax season is upon us, today I gave away four gift cards for TurboTax Deluxe to four of my readers and that got me thinking about my own taxes. How organized are you for your current, and prior, years tax returns. The 1099’s, 1098’s, W2’s and everything else should be trickling in by now and you need to have a system in place to keep track of these extremely important documents. I refinanced this year so I have gotten 3 1098’s for mortgage interest paid, both my wife and I work so that is 2 W2’s, we have IRA’s, 401k’s, blogging income, and kids. All of these things relate to taxes and all of the documents need to be in order and accessible to complete my return.
How I Do It
The system I have developed is a fairly simple hanging file folder with separate manila folders for each tax year. On the outside of the manila folder you should write down each of the interest earning banks, mortgage companies, affiliate marketers, and investment accounts that owe you some type of tax related document. As each document comes in you place it in the folder and check off that you received the document. This way you know what is still outstanding and what has been received. All of your documentation is in one easy to find location and you don’t have to worry about tearing the house apart later to find it or wondering what you still need to file.
Why It is Important
Organization is important for everything you do in life but especially for your taxes. Keeping everything together will make it easy for you to jump online and complete your tax return in no time flat. Once you complete your return everything is easily returned to the file and kept until it is no longer needed. If you came into my home right now and asked me for my 2006 tax return and supporting documentation I could whip it out for you in less than 1 minute, could you do the same thing? The IRS probably isn’t going to wait around for you to reproduce copies of things you should already have so get organized now while you have the time.
Don’t Cheat the System
I know there are people out there who think, hey they didn’t send me a 1099M so I don’t have to claim that income, WRONG! If you earned it you have to claim it, by keeping track of who owes you something you will know what didn’t come in. They don’t actually have to issue you a 1099M if you didn’t earn more than $600 during the year. That doesn’t make you any less accountable for your taxable burden. I made $400 in 2008 as a guide for the text service ChaCha I didn’t get a 1099 but I still claimed the income, my wife didn’t think I should. The fact of the matter is twofold, 1.) it is the honest thing to do don’t cheat the system 2.) if you get audited and the IRS discovers this “unclaimed” income you could be in a world of hurt after interest and fines are assessed. Just do what is right and claim everything you make regardless of if it is documented or not.
Additional Tax Resources
10 Oddball Tax Deductions
The 11 Most Overlooked Tax Deductions
TurboTax TaxCaster (forecast your return)
The good folks at TurboTax by intuit have been kind enough to provide me with FOUR TurboTax Deluxe gift cards to giveaway to four lucky readers of the is blog. These gift cards are for the online version only so there is no software to install. TurboTax Deluxe is the tax filing solution for most situations and is recommended for anyone who has a mortgage, donated to charity, have education expenses, or lots of deductions. The Deluxe version also include free e-filing to help you get your return faster.
I have personally used TurboTax in the past and had a great experience with them. I think this may be the last year I can use a product like deluxe since I hope to have a decent income from side ventures in the next year and may need to use one of the more complex filing options next year.
How To Enter
1.) Tweet it
Tweet about this giveaway, make sure you are following me and then tweet “Win 1 of 4 TurboTax Deluxe Gift cards via @suburbandollar RT + Fllw to enter #sdTTgvwy Rules -> http://bit.ly/sdTTgvwy”
(1 Entry + 1 Extra if you are a new follower)
2.) Comment
Leave a comment on this post, be sure to use your real valid e-mail address (it won’t display) so I can contact you if you win
(1 Entry)
3.) Subscribe
Subscribe to receive e-mail updates from SuburbanDollar.com. It is super easy just fill out the below form with your e-mail and activate your subscription, then pop back over hear and leave a comment telling me you signed up.
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The Fine Print
The contest is open to anyone in the United States, I will randomly select four winners on January 25th giving you plenty of time to get your entries done. Each method only counts once (unless otherwise noted), I appreciate you tweeting it out 100 times but you only get one entry.
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Updated 1/25/2010
Contest Winners
Via the bright minds at Random.org we have selected our four winners, in no particular order they are as follows:
Commenter #12 The Ramen Noodle
Commenter #32 KC
Commenter #20 DinaJ
Commenter #9 Kendra
Thanks to everyone who entered by tweeting, commenting, following, and subscribing!
