You made it. You filed your federal income tax return before the deadline. Whether you’ve already spent your refund on a tropical vacation or you waited until the final moment to hit the “submit” button, you’re facing the same thing – a stack of paper. So what should you keep and what should you throw away? And why bother being organized with a return that is already in Uncle Sam’s hands?
The IRS says in most cases you need to keep any paperwork related to your federal tax return for three years. If you filed a return with fraudulent information or you didn’t bother to file at all, there is no statute of limitations on the IRS asking to see those records.
The first thing to keep is a copy of the return. It might be helpful to refer to it when working on your taxes in the future. You also need a copy in case you have to file amendments to the original.
You should also save documents that prove income. That would be things like a Form W-2 from an employer, Form 1099 reporting interest income, and bank, brokerage house or mutual fund statements, as well as money earned on freelance or contract projects.
Save documents that substantiate expenses that appear as deductions or credits on your return. Examples of these are bills, credit card receipts, mileage logs and forms from charities.
The IRS recommends keeping records relating to real estate transactions, stock sales and purchases and IRAs for longer than the three years because they are necessary when computing gains and losses down the road. You may also want to keep those longer for insurance purposes.
There are no rules about the way the records you keep must be organized. The IRS only says they have to be kept in such a way that they are useful. That translates into: you can show up at an audit with three torn shoe boxes overflowing with miscellaneous slips of paper, or you can arrive with clearly labelled folders in an accordion file. One of those styles is more likely than the other to get the audit off on the right foot.
The IRS says there several reasons to keep tax-related paperwork in order throughout the year.
*Records identify how much income there is and where it originates.
*Records help to keep track of expenses, particularly those that can be used as deductions.
*Records make it possible to keep track of the tax basis of properties and other investments.
*Records help in the preparation of tax returns.
*Records support items that are reported on returns.
If all your paperwork is in one stack right now because you recently filed, putting it away in an organized manner could save you time and aggravation in the future. No one wants to be audited, but if it happens, it’s easier to know where your documents are than to have to try and request duplicate copies of things you can’t find.