How Long to Keep Tax Documents - Schultz & Associates
16184
post-template-default,single,single-post,postid-16184,single-format-standard,ajax_fade,page_not_loaded,,qode-child-theme-ver-1.0.0,qode-theme-ver-9.2,wpb-js-composer js-comp-ver-4.5.2,vc_responsive

How Long to Keep Tax Documents

How Long to Keep Tax Documents

Keeping documents organized is a headache for most (if not all) small businesses. But once you’ve filed your taxes, that doesn’t mean you can shred everything.  The IRS can come back years later and ask questions regarding your tax return, and having proper documentation is going to be what keeps you out of trouble. You have to hang on to the paperwork for a certain period of time, depending on your circumstances. Let’s take a look at what those situations are.

There is no specific method in which you have to store your documents, the IRS just suggests to keep them in “an orderly fashion.” Part of that includes ensuring the documents are safe. We will look at some storage ideas at the end.

First, let’s look at what documents you need to prove certain things.

Income:

  • W-2
  • 1099
  • Bank Statements
  • K-1
  • Brokerage Statements

Expenses:

  • Invoices
  • Receipts
  • Canceled Checks/Other proof of payment
  • Sales Slips

Home:

  • Proof of Payment
  • Purchase and Sales Agreement
  • Insurance Records
  • Closing Statements

Investments:

  • Brokerage Statements
  • 1099
  • Mutual Fund Statements

How Long to Keep Documents:

3 Years:

  • If you owe taxes and don’t fit into any of the following 3 situation

6 Years:

  • If you fail to report all income and it equals more than 25% of the gross income on your tax return

Indefinitely:

  • If you fail to file a return
  • Or if you file a fraudulent return

3 Years or 2 Years After Tax Was Paid (Later of the 2):

  • If you file for a credit or refund after your return was filed

7 Years:

  • If you file a claim for worthless securities loss.

 

You should keep your actual tax filing (and forms/schedules) indefinitely. It doesn’t necessarily have to be in paper form, so feel free to store it digitally (but make sure you back up the data!)

Exceptions to the Time Limits:

  • If there are any suspicions that your income has been underreported, the IRS has 6 years to question you regarding that income, assuming it is 25% of your gross income or more.
  • When it comes to worthless stock write-offs, they have 7 years.
  • If your return is suspected to be fraudulent, they can come to you at any time regarding that return.

 

How to Store Documents

  • As mentioned before, you can store your tax documents in digital form. You just want to make sure that you have access to that data, and it’s well protected. Consider a back up of some form in a fireproof safe.
    • The IRS will accept digital forms of documents as long as they’re legible
  • Make sure someone you trust knows where the documents are stored.
  • If you use QuickBooks, you have the option to store digital receipts through the platform, which is sure to save you time.

 

Ultimately, your documents are the only proof you have in the event that an IRS audit would arise. You want to protect yourself and your company as much as possible. This is one situation where more may actually be better, so err on the side of caution when deciding whether to store something or throw it away.



HAVE A QUESTION & NEED A QUICK ANSWER? CALL US 423.899.1130