How Long Should You Keep Tax Documents Before Shredding?
Does figuring out how long you should keep tax documents feel like mission impossible? Wouldn’t it be great if, when the right time came, they would just self-destruct in 5 seconds? This blog aims to help you understand how long you should keep tax documents before shredding them.
Storing Tax Records
Misplacing papers is easy, especially when you receive them at random times throughout the year. Instead of panicking and embarking on a scavenger hunt for your receipts, implement a simple method of using file folders to stay organized from the beginning of the year. The simplest approach is to use one folder for all tax-related receipts and then sort them at tax time. To further simplify the sorting process and help recall what receipts are for, use several folders and label them accordingly:
- Income (W-2 or 1099)
- Medical Expenses
- Banking Info (mortgage, student loans, investments, retirement savings, etc.)
- Childcare Receipts
- Home and Property
- Charitable Donations
Having these documents organized, rather than handing them stuffed in a grocery bag to your tax preparer, will save time, money, frustration, and a lot of questions.
Keeping Tax Records
The best resource for the most accurate retention periods for your tax documents is the Internal Revenue Service (IRS). Here’s what they recommend:
- After Filing Your Tax Return: Keep records for three years from when you filed your original return. If you file a claim for credit or refund after you filed your return, keep the records for two years after filing.
- After Filing a Claim: Keep your records for seven years if you file a claim for a loss from worthless securities or a bad debt deduction.
- If You Fail to Report Income: Keep records for six years if you do not report income that you should report and that is more than 25% of your gross income on your return.
- If You Don’t File a Return: Keep your records indefinitely if you don’t file a return or if you filed a fraudulent return.
- Employment Tax Records: These should be maintained for at least four years after the tax due date or when it is paid, whichever is later.
- Property-Related Records: Keep these records until the period of limitations expires for the year in which you dispose of the property. Records are used to calculate depreciation, amortization, or depletion deductions and to determine the gain or loss when you release the property.
Fortunately, if you lose or prematurely destroy your documents, you can access personal tax records online or by mail, including transcripts of past tax returns, tax account information, wage and income statements, and verification of non-filing letters. Business tax transcripts can also be retrieved from the IRS.
Destroying Tax Records
Now that you know what the IRS expects regarding maintaining your tax documents, make it a practice not to keep any personal documents longer than necessary. By having tax documents securely destroyed after they are no longer needed, you will:
- Avoid Unnecessary Clutter: Reduce clutter in your home or business office space.
- Recover Space: Free up space that could be used for other valuable purposes, making it easier and quicker to find needed documents.
- Protect Against Loss or Theft: Safeguard your information from being lost or stolen and used to steal your identity and finances.
Properly destroying your documents is an essential step in protecting yourself from identity fraud. Tax-related identity theft occurs when someone uses your stolen personal information, including your Social Security number, to file a tax return claiming a fraudulent refund. Take your discarded tax documents to a reputable shredding company to be shredded, rendering them impossible to recover any information.
ShredLink offers recurring scheduled shredding, one-time purge shredding, and drop-off shredding services so it’s easy to have your tax documents safely and securely destroyed. We serve Southeast Louisiana with compliant shredding and recycling. To safely shred your tax documents, call us at 504-885-0186 or complete the form on this page.