Important Proof Documentation for Your Tax Returns
Now that the tax return period is over, at least for those who did not file for an extension, there is always the temptation to push away all the tax preparation documentation and move on into new things. However, before you toss aside your tax documentation, you need to know that the IRS expects you to file your documents for at least 3 years. This is because the IRS can audit your returns up to three years from when you filed them. However, if you had understated you income in any given year by over 25%, the IRS can audit you after 6 years of filing such an “erroneous” return.
Finally, if you had submitted a fraudulent tax return or did not file a tax return at all, the IRS can audit you indefinitely. Therefore, even if you filed your tax returns correctly, you should still keep your tax return documentation for at least three years, just in case. However, note that there are many States that require taxpayers to keep tax documentation for at least four years. Therefore, to be safe, it would be best to keep your tax support documentation for at least four years after filing returns.
However, there are still other documentations that you may need to keep for a longer period for various reasons:
- If you made a capital gain loss and you need to deduct the loss against future taxable income, then you will need to keep the loss documentation for each year you deduct the losses and, therefore, you will need the loss documentation at least for four years after the year that you made such deductions.
- If you made major renovations to your house, you will need to keep the receipts and other adjustments documentation together with your records for the purchase of the house until you sell the house. This is because you will need the support documentation when calculating the capital gain tax on the sale of the house.Read more here!
- If you sold your property under a 1031 exchange, then the sales agreement support documentation will be required as long as you are receiving the sale exchange deposits. You should keep the documentation for at least four years after you receive your final deposit and had wrapped up the sale.
- If you had any carry forward funds such as business losses carried forward, deferred tax carried forward from sale of a house, and a passive loss carried forward, you will need the relevant documentation until you have exhausted the carry forward and four years thereafter.
- If you are disabled and take credits on taxes because of your disability, then you will need to keep the record from a medical practitioner that stated that you are disabled to keep evidence of the date you were officially declared disabled.
- If you make retirement contributions, keep the contribution statements, such as the IRS Form 8606, Form 5498, and Form 1099-R, until you receive the final distribution from your retirement fund.
- At times, you may be required to take photographs as support documentation. This comes to play when you have a home office and when claiming casualty or theft loss deductions. Read the news coming from http://money.usnews.com/money/personal-finance/taxes/articles/2017-01-05/5-signs-you-need-professional-tax-help
For the rest of the support documentation such as paystubs, copies of your tax returns, fund distribution forms, investment records, bank statements, medical bills, and any other support receipts, you can file them for the four year period. When you can safely establish that you will not require them again, you can and should destroy the documentation (an option is to shred them) to protect your private information. However, it is always advisable to keep an electronic file of all your documents for future reference.