SelfInformed

May 2016


How Long Should I Keep my Tax Records

Friday, May 27, 2016



Q:
 How long should I keep my tax records and what is the best way to secure them?

A: We have all heard about the paperless society that the world is moving toward, but unfortunately the IRS is not yet on board with that process. Your tax return still today can be best supported with a stack of paper.  How long to keep that stack of paper can be confusing. The IRS can examine your tax returns for up to three years from the date you actually file the return. So if you file your 2015 federal income tax return on April 15th of 2016, the IRS can choose to examine that return at any time through April of 2019. However, if you filed an extension and ultimately file your return on October 15th, then the IRS will have until October 15th of 2019 to ask questions about your 2015 tax return. 

From a technical standpoint, you should keep your tax records and related support for three years, but if you can keep those records for four years, then you will never need to remember if you filed on April 15th or October 15th.  Therefore, tax records for 2015 should be retained through 2019, and 2016 records should be maintained through 2020 and so on. 

It is certainly a good idea to convert the actual paper into some electronic form of filing system, but not required. If you can scan your personal stack of paper and save a digital copy of the records in addition to the actual paper, you may very well avoid the angst of water damage or other destruction of the paper and might also enable actually locating the detail two years from now when the IRS does decide to send you that letter asking for more information. As always, and for many reasons, it is also a great idea to make sure you have committed to maintaining a separate bank account for your business. By making sure all of your activity related to the business runs through that dedicated business bank account, your bank will now also have a digital copy of a vast majority of all of your support. Even if your system of retention fails, your bank will still maintain the detail of your transactions. So if you haven’t done it yet, go down to your bank on open that separate bank account. If something happens to your records, you will be glad you did.

As always, don’t forget that you are not alone. Bookmark our website at NASE.org as well as the IRS website at IRS.gov you will always be able to find the help you need.

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