Why It Is Important to Keep All Your Tax Papers

Many people are unaware of how important it is to keep their tax returns. People need their tax returns to apply for a loan, or for disability insurance. Old tax returns are also important if people are unable to locate their other paperwork. They may show what taxes have been paid for dividends and other financial information.

On the other hand, many people feel that it is unnecessary to keep all of their tax returns and records. They believe that having so much paperwork is a definite security risk because they contain serious personal and financial information.

According to the Internal Revenue Service, it is imperative for people to keep their tax returns for a minimum of three years after filing state and local tax returns. If a person is audited, the Internal Revenue Service can review tax returns that were filed during the period of limitations, which is normally three years from the date that the most recent tax returns were filed. The Internal Revenue Service will take a look at supporting documents for reported income and deductions.

It is also recommended to keep all related documents, such as receipts. Keep copies of W-2s and 1099s, as these things relate directly to entries on the tax return. Record keeping is a great way to stop problems from occurring in case there is an audit.

Please be aware that the Internal Revenue Service is still able to investigate a tax return and also collect taxes owed for six or seven years after a return. This only happens in special situations. Failing to report income that amounts to more than a quarter of total income is something that will cause the IRS to investigate. If someone files their taxes and later on files to receive a return or ask for a credit or if someone took a deduction for debt or had a loss from securities, then they should keep their returns and records for at least seven years.

Having a structured system is the best way to stay up to date with all of the information. People should give electronic images of their income taxes. If someone filed over the internet, save a copy to a compact disk and put it in a secure place. In these current times, many people want an electronic copy and a hard copy of their tax returns.

People must hold on to everything if there are some years where they may have skipped filing. The IRS can contact someone at a moment's notice and ask for those records. Keeping all of the information concerning tax returns together is the best way to avoid having problems with the IRS because everything is direct and accessible.