Understanding the importance of organizing and retaining tax records for future reference and potential audits.

Now that you’ve successfully filed your taxes, you might be wondering which tax records you should keep and which ones you can safely discard. While it’s tempting to de-clutter and dispose of documents, it’s crucial to retain certain tax records for future reference, documentation purposes, and potential audits. Here’s a guide to help you determine which tax records you should keep:

Tax Returns:

Keep copies of your filed tax returns, including all supporting documentation (such as W-2 forms, 1099 forms, and receipts) for at least three years from the date of filing. In some cases, you may want to retain tax returns for up to seven years, especially if you’ve claimed losses or filed an amended return.

Backup Documents:

Retain backup documents that support the figures reported on your tax returns. This includes receipts, invoices, bank statements, investment statements, and any other records related to income, deductions, credits, or adjustments. Keep these documents for the same period as your tax returns.

Employment and Income Records:

Keep copies of your W-2 forms, 1099 forms, and any other statements reporting income for the current tax year and at least three years after filing your tax return. These documents help verify the accuracy of your reported income and can be useful during tax audits.

Investment and Retirement Account Statements:

Retain records related to your investment and retirement accounts, including statements, purchase and sale confirmations, and dividend reinvestment statements. Keep these records for as long as you own the investments or until you sell them.

Property and Real Estate Documents:

Keep records related to the purchase, sale, or improvement of property or real estate. This includes closing statements, purchase and sale contracts, receipts for home improvements, and documentation of any major repairs or renovations. Retain these records for as long as you own the property, plus seven years after selling it.

Business and Self-Employment Records:

If you’re a business owner or self-employed, retain all records related to your business income, expenses, and deductions. This includes sales records, receipts, invoices, and business-related bank statements. Additionally, these records should be kept for at least seven years.

Medical and Health Insurance Records:

Hold onto medical expense records, health insurance statements, and records of any reimbursements received. These records can be valuable for potential deductions or if you need to substantiate medical expenses in the future and should be kept for at least three years.

Education Expenses:

Keep records of education-related expenses, including tuition payments, student loan interest statements, and receipts for educational supplies or materials. You must retain these records for at least three years.

Remember, it’s important to store your tax records securely. Consider keeping physical copies in a fireproof safe or using electronic storage options with password protection. If you choose electronic storage, make sure to have backups in case of data loss.

By organizing and retaining the necessary tax records, you’ll be better prepared for any future inquiries, audits, or questions that may arise. Maintaining these records will also make next year’s tax filing process smoother and more efficient. You can find licensed professionals to help you navigate the tax code by using a marketplace like ifindtaxpro, just post your project. With a platform like IfindTaxPro, you can be assured that you will find a qualified professional who can spot opportunities and risks that you may not be aware of. You can also keep all your records in one place to help you and your tax professional.

For licensed tax professionals who are interested in helping others, IfindTaxPro also offers a marketplace with a full suite of tools to communicate with clients, including compliance calendars, task and message management, and billing. You can also quickly connect with knowledgeable colleagues who can complement your services with the ones you do not provide. Register with IfindTaxPro today to start helping clients and building your practice.