Whether you are expecting a tax refund or preparing to write a check, you know that April 15 is the annual tax filing deadline. What you may not know, however, is that Tax Day is every day at the Internal Revenue Service (IRS). The tax agency is always reviewing the information taxpayers and business owners have filed.
That means that keeping tax records is an integral form of self-protection, it is about more than just smart bookkeeping. During the year, millions of Americans get letters from the IRS stating they owe back taxes or requesting more information about their personal or business tax returns.
The IRS has the right to request additional information months, or even years, after the return you filed has supposedly been processed and accepted by them. In fact, the IRS can request additional information for up to three years after the annual tax deadline.
We help people resolve their back tax problems and often settle with the IRS for less than the amount they owe, but in order to do this, among other things, we need to provide the right records. That’s where having your tax records saved can be the difference between settling your tax debt or not.
As a result, it is important to retain your tax records and keep certain tax documents on hand, just in case the IRS asks for them. Here are the most common tax records and how long you should keep them.
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Save The Tax Returns Themselves
In most cases the IRS will have up to three years to question the figures you reported on your tax return, or otherwise challenge the information you provided. You may think the tax year is over, but for the IRS the final curtain does not fall for a full 36 months.
For this reason, it is generally a great idea to keep your old tax returns for a minimum of three years. You do not necessarily have to print and retain hard copies of them – electronic documents are fine as long as you will be able to access them quickly should you need them.
If you fail to keep copies of your tax returns, you can still access them by asking the IRS for transcripts. It is best to keep your own records, and doing so will make your life a lot easier.
Pay Stubs and W2 Forms
As with the tax returns themselves, it is generally a good idea to keep your W2 forms for a minimum of three years. This will provide you with the support you need should the IRS find a discrepancy between the amount of income you reported to the agency and the figures provided by your employer.
It is also a good idea to retain at least your year-end pay stubs, not only to help reconcile them with the W2 forms but also for other forms of income documentation. If you are applying for a mortgage, for instance, the lender may ask to see several years’ worth of tax returns, pay stubs and other income documents, and having them on hand will make the application process faster and easier.
Income and Dividend Forms
The IRS looks at all of the income you report when you complete and submit your tax returns, but the agency does not just take your word for the accuracy of those figures. Instead, the IRS uses sophisticated matching programs to compare the amount of income you reported from various sources with what they receive from third party sources.
Those third-party sources could include your bank and credit union, your brokerage firms and mutual fund companies and any other places that provide you with income. It is therefore a good idea to hold onto any income related forms you receive for at least three years, and possibly longer if you run your own business or earn income from gig work or freelancing, Schedule C filer.
Once again, these income documents can do double duty, serving as backup if the IRS questions the numbers on your tax return but also giving you the information lenders and others might need down the road. If you store these documents electronically you will not even need to worry about buying a file cabinet, so there is really no reason to not keep them around.
Filing taxes can be a stressful experience, but the difficulty does not end when you click send on your e-filed tax return. Even after that return has been filed and accepted, the IRS could still question or challenge your numbers, and that’s why it is so important to retain the backup documentation necessary until the challenge window has passed. Now that you know what to retain and for how long, you can rest a little easier when tax time rolls around.
If you do run into tax trouble or the IRS states you owe back taxes, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem. www.wesolveyourirsdebt.com.
