Did you feel that extra strong gust of wind when stepping out on your porch April 16? If you did, know that while scientists have yet to officially confirm the cause, there’s strong suspicion it had something to do with millions of Americans breathing a collective sigh of relief at the end of tax season.
Possibly made-up weather phenomenon aside, the act of finishing one’s taxes can feel like the end of a struggle. You’ve finally finished rummaging through all that paperwork, you’ve filled out the forms, and you don’t have to think about your income tax again until February. (My apologies to the self-employed among us who often have to file self-employment taxes quarterly. Keep fighting the good fight.)
Now that you’re done though, what do you do with all that paper? You can’t throw it all out because you might need it. How do you decide what should stay and what should go? Can you keep everything and yet remove the paper trail entirely?
Keep It All: The Case for Pack Rats
When I say keep it all, I mean tax documents and supporting documentation. You probably won’t have to hold onto bank statements and electronic bills going back to 1975. No judgment. I’m sure that in a couple years, I’ll pull out a fast food receipt to show my kids and say, “I remember when a double cheeseburger was a dollar and you got two slices of cheese.”
The IRS will generally audit tax returns going back up to three years. The timeframe increases to six years if they have reason to believe you’ve underreported your income by 25% or more. There’s no time limit if you’ve filed a fraudulent return. (But our readers are too smart and honest to have to worry about that.)
Even if you’re beyond the time limits, there’s a strong case to be made for keeping 1040s, W-2s and other supporting documentation for personal and business taxes. They’re often useful in settling disputes over Social Security or even estate issues. If you’re on SSI or another program tied to your income, you may want to keep things like pay stubs and bank statements for reporting purposes as well. For most people though, six years is probably long enough.
Where Do You Keep All This Stuff?
There’s a lot beyond your W-2 and documentation that goes into filing your taxes. You can deduct things like the costs of special uniforms bought for work, your mortgage interest, charitable donations and about a million other things. Some of them are just downright weird.
You have to keep documentation to prove all of this, but all that paper can start to build up really quickly.
Fortunately, you can take advantage of electronic documents to make a big dent in the paper trail. Bank statements and plenty of billing and tax information is now stored online.
If you’re uncomfortable storing your tax info in the cloud, you can encrypt documents on a flash drive.
What do you do about those documents that aren’t stored online? Do you have to start keeping all those important receipts and invoices in a shoebox? Thankfully, the answer to that is no.
If you’re looking for guidelines on how long to keep documents not associated with your taxes, the American Institute of CPAs has some good advice.
Additionally, if you run a quick app store search on the smartphone platform of your choice, there are many apps that will let you scan documents with the snap of your phone’s camera. Many of these perform optical character recognition so that the text is searchable in the future.
Hopefully these tips help you tame the unwieldy monster that is tax documentation. If you have any questions, let us know in the comments.
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