Do you have a file cabinet that is stuffed to the max with all of your past tax records? Do you really need all those documents or is it safe to discard some of it? As a general rule, keep federal and state returns a minimum of seven years. Here are a few tips that may help you reduce all that paperwork.
* Income. The IRS recommends that you keep your W-2’s until you start collecting social security. For example: Capital gains from banks or brokerages, 1099s showing interest, dividends, and schedule K-1s from partnerships and S corporations. The IRS also recommends holding on to your W-2s until you start collecting social security. This will come in handy if there is a discrepancy with earned income pertaining to your social security.
* Expenses. Verification for deductions should be retained for at least 7 years after claiming them on your returns. These documents may include receipts for charitable donations, business expenses, and mileage.
* Retirement accounts. You may have to calculate the taxable portion of distributions, so keep records detailing your contributions until you've recovered your basis.
* Tax returns. The statute of limitations is usually three years but can be six years if under reported income is involved. In cases of fraud or when no return is filed, the IRS has an indefinite time period for assessing additional tax.
For more tips contact our office at (855) 977-7623 to schedule an appointment with our advisors. At Summit CPA we offer multiple resources that will help you get on the right track. By utilizing our Virtual CFO we have the capability to assist you virtually anywhere in the USA.