Even though time seems to have slowed this past year, now that we’ve hit 2021, it’s hard to believe it’s February already! And before we know it, tax day across America will be upon us with a looming deadline of filing federal taxes by Thursday, April 15.
As an official legal document, your federal tax return is essentially a basic contract between you and the Internal Revenue Service (IRS). Once you’ve got everything filed, how long do you need to keep important tax return documents? Let’s take a look.
What Tax Return Documents Do You Need?
Depending on your situation, what you’ll require to file your taxes with the IRS will vary. In general, you’ll need to provide your personal information including your Taxpayer Identification Number (TIN), as well as income sources and any offsetting tax credit/deductions you’re eligible to claim. As a homeowner, you may be able to deduct interest paid on your mortgage and/or for residential energy efficiency equipment if you’ve incorporated home improvements such as an Energy Star® air source heat pump or central air conditioning.
How Long Must You Keep Your Income Tax Documents?
According to the IRS, “The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.” Once you’ve filed your federal income tax, the period of limitations is the time within which you can adjust your tax return information, or the IRS can assess additional taxes.
The IRS advises keeping your income tax for the applicable period of limitations as follows:
- indefinitely if you don’t file a return, or file a fraudulent return
- 3 years from when you file or 2 years after you’ve paid taxes
- 4 years for employment tax records
- 6 years if you report less income than you should
- 7 years if you file a bad debt deception or a securities loss
Why Do You Need to Keep Your Vital Income Tax Documents?
Since your income tax return is legally binding, you’ll want to have your copy on hand for reference. If you need to file an amended tax return, you’ll need a copy of the original return you already filed. Your return will be used to file for any future amortization or depreciation, as well as to calculate any gains or losses when selling your property.
Can I Get Rid of My Income Tax Documents After the Period of Limitations?
While it may seem tempting to shred everything income tax-related after the IRS period of limitations runs out, the IRS advises you may need to keep records longer if you’re dealing with creditors or insurance companies. Since some records may be hard to reproduce, think long and hard about disposing of vital paperwork. Take the time to ensure you won’t require it again in the future before tossing it aside one final time.
Have you ever had to rummage through a multitude of boxes looking for a past tax return from the IRS? You can save time by safely storing all your receipts and income tax return documents online with the easy-to-use DomiDocs homeowner platform. You’ll also be able to track and defend your property cost basis for 1099-S sales tax reporting should the need arise.
Author – Connie Motz