Posted by Pat Raskob

Tax Records: How Long Should You Keep Them?

Tax Records: How Long Should You Keep Them?

On filing your taxes, your tax records still need to be with you for nothing less than three years after filing. 

It is also possible to keep them for two years, going by the date when you paid the tax. On the other hand, people who filed a claim for a security loss should plan to keep their records for not less than seven years.

 

Keeping Tax Records: For How Long?

Some factors affect how long you need to keep these documents. It depends on both the federal and state federal guidelines. 

However, keeping your tax records should not be strictly for tax purposes alone. There could be audits down in the future, while insurance companies and creditors might require it for records. 


Three years 

For a standard employee who gets the W-2 form with a relatively straightforward tax, your duration might be short. 

People in this category should keep the tax records for at least three years after filing. You only have three years to claim your refund after filing, and Uncle Sam won't go back more than three years should you need more info for your tax. 

This also applies to self-employed people and freelancers. If you claim a sale of any business-related equipment, it is essential to keep them for three years after selling. 


Six years

Not everyone gets to enjoy the three-year rule.

The exception to the three-year rule is that omitting more than 25% of your gross income from your return, Uncle Sam has up to 6 years to examine an extra tax. However, if you submit a fake tax return, this statute will not expire. 


7+ years

Chances that you will remember correctly what you were up to seven years ago will be slim. However, one still needs to offer Uncle Sam an idea of what you spent money on. As a result, all records related to retirement accounts need to be held for seven years after withdrawing.


Essential Tax-Related Documents You Should Keep 

Uncle Sam generally advises keeping all essential documents that reveal the income value you earned alongside whatever supports the deduction or credit you claim. The following is a list of critical tax documents one need to keep for three years at least:


Income

Ideally, what you earn every month is what starts your taxes. As a result, you need a record of the whole dollar you made in a particular year like:

  • W-2 forms

  • K-1 forms

  • 1099 forms


Expenses 

Independent contractors or self-employed workers need to have evidence of the entire money spent to keep the business operating. These are:

  • Invoices

  • Receipts

  • Sales Slips

  • Cancelled checks 


Home 

There are substantial tax implications that come with buying and selling a house

  • Proof of payment 

  • Insurance records

  • Closing statement

  • Sales and purchase invoice


Retirement Accounts 

As you prepare for retirement, ensure Uncle Sam is aware of your cash flows:

  • Form 1099 R distribution records

  • Annual statements 

  • Form 5498, Roth and traditional IRA contributions 

  • 401K and others


Health Insurance 

While filing your taxes, showing proof of insurance is not essential. However, one might need to show Uncle Sam that one is covered.

  • Health Insurance Marketplace Statement: Form 1095A

  • Health Coverage: Form 1095 B

  • Employer-provided Health Insurance Offer and Coverage: Form 109-C

  • Insurance Card

  • Time limit exceptions

  • Insurance provider statement


Organizing Your Tax Records

As you prepare your documents to send to Uncle Sam, bear in mind that you might need such documents in the future, should there be an audit. As a result, you need good plans for keeping such documents safe for at least three years. 

The good idea is to develop a filing system that classifies your entire record based on year and category like income receipts and forms, bank statements, etc. Ensure to maintain the system throughout the year, so it will be accessible when you file. Besides, you will be able to supply Uncle Sam anything should they request it from you. 


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THANKS FOR VISITING.

Pat Raskob
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