Posted by James Financial Services Inc

Is Keeping Past Tax Returns Necessary?

Is Keeping Past Tax Returns Necessary?

Yes, keeping past tax returns is necessary. However, the length for which this should be done depends on several factors. Meanwhile, the IRS recommends that you keep copies of your filed tax returns as they are valuable in helping you make computations if you file an amended return.

Also, you should not discard your tax records simply because you assume that they are no longer needed for any tax purposes. You may still need them for any other purpose, like insurance. However, there's a time limit after which it is no longer necessary to keep certain tax returns. 

Typically, how long a tax return should be kept depends on the type of tax and the kind of transaction. The norm is generally to keep all tax records until the period of limitations for each tax return ends, which is the period when you can still make amends to your tax returns to make claims for tax credit or refund. During the limitations period, the IRS may still assess that you have extra liabilities.

While you can safely dispose of the returns after the period elapses, being official documents, we recommend that you keep them for as long as possible or at least convert them into soft copies that could be stored en masse. You can scan them and safely house them in secured digital formats.

But the IRS recommends keeping your tax returns for these periods depending on the condition.

  • Keep your tax records for as much as seven years if you file a claim for the loss that comes from a horrible debt deduction.

  • Keep your tax records for up to six years if you did not report any income that should have been reported and if it exceeds 25% of your gross income.

  • Keep all your employment tax records for a minimum of four years after the tax becomes due or is cleared.

  • If you file a claim for a refund, keep your tax records for three years from the date you filed the original return or two years from the date you paid the tax.

Also, note that the IRS recommends keeping your tax records indefinitely if there is no need to file a return or file a fraudulent one.

The minimum time to keep your tax return is three years, while you need to keep it for seven years maximum.

Remember that your tax returns contain sensitive information that shouldn't fall into the wrong hands. Discarding them may put you at risk. So, if you must discard them after seven years, make sure they are not put in a place where scammers can access them.

The IRS also recommends that you should endeavor to keep records that have to do with your property until the period of limitations in which you let go of the property expires. This is necessary for when you may need to sell the property and would have to pay tax on the profit. If the property was obtained in a nontaxable exchange, you should keep the records until the period of limitations passes for the year you dispose of it.

If you have checked and found out that you do not need any of the tax records anymore, you may then safely dispose of them. The best way is to shred them before getting rid of them so that no personal information may fall into the wrong hands. 

So, keeping tax returns is necessary, especially for as long as seven years. If you have not had issues with scammers and have always been keeping up with your taxes, after seven years of keeping them, you can be sure that getting rid of them won't cause any problems.



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