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Tax Documents You Should Always Keep

If you are a contract worker, you will receive a 1099 instead. Everybody’s tax situation is unique and might require different forms. The list below will explain what the most common forms are for and whom they might serve best. For 2020 tax filings , anyone who made less than $72,000 a year is able to file for free as part of the IRS Free File program. Companies including Intuit, which makes TurboTax, H&R Block and others spent millions lobbying to bar the IRS from making its own free filing option while promising to create their own free products. But then, as ProPublica reported, they systematically undermined the truly free options by hiding search results and calling their products “free” even though for many, they’re anything but. For 2021, the tax deadline for individuals was extended to May 17.

Whether you use old-fashioned manila filing folders, a flash drive or cloud storage, tax and personal finance authorities agree on the importance of saving tax documents and records. In addition to using the information for preparing your next income tax return, it may come in handy years from now. Keeping tax returns for the three-year time period is tied to the IRS statute of limitations. Likewise, the IRS generally has only three years from the filing date or due date of the return to assess an additional tax.

As in the case of home improvements, you want to keep records related to other property—stocks, a vacation home, rental property or art work. Again, you need to know what you paid for property, including commissions and other acquisition costs, so you can properly figure gain when you sell. If you don’t, you may have to pay more in taxes than would otherwise be due (it’s up to you to prove your tax basis if the IRS challenges your return). The longer you own the home, the more likely bookkeeping that the price you get when you sell will be higher than what you paid and that you’ve put more money into the home for improvements. Find a list of capital improvements for which you should save receipts or other proof of payment in IRS Publication 523. Of course, you need to hold on to essential tax documents, contracts, and various paperwork, even if you don’t own your own business! Everyone should always protect their assets by keeping important legally binding documents secure.

What Happens When You Can’t Pay Your Taxes?

If the IRS sends you a letter indicating you never filed, it’s up to you to prove otherwise. In order to do this, retain a copy of your return forever, along with proof of filing. To be successful, you need to have a business plan or model, appropriate business type, appropriate accounting method, a good bookkeeper, and the ability to use all this information to your advantage. Part of this process includes the retention of receipts. This lesson is especially important to teachers and school or college administrators.

Tax Documents You Should Always Keep

Mortgage providers, banks and other financial institutions often post those important 1099 forms on your online account. So it’s a good idea to create an email tax folder for messages relating directly to tax information.

For your protection, take a moment to carefully review their policies and procedures, as they may not be the same as those of H&R Block. Southern New Hampshire University is a registered trademark in the United State and/or other countries. H&R Block does not automatically register hour with SNHU.

If you have the original documents, you can prove they owe you more than they would currently pay out. Reason No. 3 — You move around often, or have had income in other states — either via a job or an investment that issues a K-1. A heart-wrenching accounting problem TaxMama® often hears about is people who suddenly find their IRS refunds being grabbed by other states with no apparent warning. The taxpayer had no idea they owed any money. In some cases, the tax debt might be 10 or 20 years old.

Why Should You Keep Tax Records?

Keeping all of your documents on your computer isn’t very efficient and can bog down your system. Other digital storage options include external hard drives, like HDDs and SDDs, which are compact solutions for storing massive amounts of electronic data. An even more compact solution is storing electronic paperwork on a flash drive, although flash drives also are easier to misplace or damage. You can toss most monthly bills after you pay them, or after the payments have credited to your bank statement. If you end up needing to go back to verify anything, see if you can access past bills through online account access. Many companies keep past bills and invoices available online for the past few months or longer.

  • Fees for other optional products or product features may apply.
  • Whether you use old-fashioned manila filing folders, a flash drive or cloud storage, tax and personal finance authorities agree on the importance of saving tax documents and records.
  • There’s inexpensive tax software back through 2000 at TaxACT.
  • Most of these documents contain personal information you don’t want to have exposed.
  • In business, keeping good record of your activity isn’t just helpful for filing your taxes and monitoring your finances, it’s a legal requirement imposed by the IRS.
  • If you do end up choosing a digital storage solution, make sure you don’t need a physical copy or original document in the future.

The six-year rule also applies if you have substantially overstated the cost of property to minimize your taxable gain. Say if you sold a piece of property for $150,000 and claimed you paid $125,000 instead of the actual $50,000, the IRS has six years to take action against you. And if you have omitted more than $5,000 in income from an offshore account, the statute of limitations is also six years. Similarly, if you’ve sold a home, you’ll need records that prove what you paid and what you received from its sale. And if you’ve sold a rental property, you’ll need detailed records of the amount you’ve invested in the property over the years, as well as how much you deducted for depreciation. It’s wise to keep Schedule E, the form you fill out every year for rental income, as long as you own the property. If you do end up choosing a digital storage solution, make sure you don’t need a physical copy or original document in the future.

What Tax Documents Should I Keep And For How Long?

But once you’ve completed your transaction and have moved in and settled, do you know what you need to save — and how long do you need to save it? As with the IRS, the state tax system has no statute of limitations on audit or collections for tax returns never filed. If you don’t file and tell them that you don’t owe money, they will assume you do.

Tax Documents You Should Always Keep

The student will be required to return all course materials, which may be non-refundable. Discount is off course materials in states where applicable. Discount must be used on initial purchase only. CTEC# 1040-QE-2355 ©2020 HRB Tax Group, Inc. Available only at participating H&R Block offices.

Filing Your Tax Return

The last thing you want to do is shred something to save space, only to need it five years later. Keep pay stubs at least until you check them against your W-2s. If all the totals match, you can then shred the pay stubs. Take a similar approach with monthly brokerage statements—you can generally dispose of them if they match up with your year-end statements and 1099s. Hold on to cash receipts that document your transportation, charitable work and other tax-deductible activities. Hold on to any paperwork and documents that arrive in the mail, or receipts needed to prepare the return, even if you’re not sure. It’s always better to have too much information than not enough.

Tax Documents You Should Always Keep

This list highlights the most common tax forms and which ones you might need, depending on your circumstances. Use Sprintax to fill out a new Form 1040NR. Follow the instructions to print and submit the tax return by mail, not electronically. If you do not submit your tax return, you could be fined and you may be disallowed from returning to the U.S. in the future. When you start your training in the U.S., you will fill out a W-4 form so that your host trainer can estimate what income should be withheld from your wages for tax purposes. If you are a teacher, include receipts for any expenses paid for classroom supplies. You’ll need to include your ex-spouse’s name and social security number.

Tax Documents You Should Always Keep

That is the period of time during which you can legally amend your return to claim a credit or refund. The best way to store hard copies of tax documents is in a fire-proof safe. It’s also a good idea to tell one other person where you keep the key to the safe (e.g., a spouse or other trusted family member). This way, if an emergency arises, that individual will know how to access any documents they may need to keep your affairs in order. What if I receive another tax form after I’ve filed my return? If you’ve already e-filed or mailed your return to the IRS or state taxing authority, you’ll need to complete an amended return. You can file Form 1040X through the H&R Block online and software tax preparation products or by going to your local H&R Block office.

She does her best to keep it interesting and jumps at any opportunity to learn something new. No, you can’t just throw them in the garbage the second you get your refund check.

Maintain hard copies of all state and local licenses that are required for you to operate your business. Small businesses that file as an S-Corp or Partnership need to hold onto schedule K-1 documentation for a minimum of six years to show evidence of Where’s Your Tax Refund partnership shares. Small businesses should store 1040 forms and any other supporting documentation for a minimum of three years. Navigating tax document requirements is notoriously complicated and is often unchartered territory for a small business.

Author: Anthony Ha