Record Keeping and Tax Preparedness
This is a question we get all the time–what should you keep on record, and how long should you keep them? As tax filing season winds up, the IRS (as well as Gagliano Associates) offers some words of advice about what to keep. While it may seem frivolous to keep old tax returns and records for properties you no longer have, there are some guidelines to abide by. These records will come in handy should you ever need to file an amended return or if questions arise.
General Recommendations for Records
The IRS recommends keeping copies of tax returns and supporting documents for at least three years. We generally recommend keeping your tax returns for seven years. Some documents, however, should be kept for longer. Any records relating to real estate should be kept for seven years after disposing of the property. Additionally, health care information should also be kept along with your tax returns. While the IRS does not need statements sent to them as proof of coverage, you should still keep some health records. This includes records of any employer-provided coverage, premiums paid, advance payments of the premium tax credit received and type of coverage. You should keep these records as you would other tax-related documents. In most cases, that would be three years from the time you file your tax returns.
Keep Your Records Secure
However you store your records–whether you keep paper transcripts or store records electronically, it is important to keep this information safe and secure. This is especially important for anything that bears Social Security numbers. The IRS suggests scanning paper tax and financial information into a format that can be encrypted. These can then be stored securely on a CD, flash drive, or DVD.
Importance of Keeping Previous Year’s Tax Returns
Now, more than ever, it is important to keep your previous year’s tax returns. The IRS is taking new measures for security. These new measures require a two-step process. This authenticates the user and protects taxpayer identity. The two-step process is similar to what some bank apps already use. It’s also similar to what social media sites use when logging in from a device you haven’t used before. Beginning in 2017, some taxpayers will need to enter either the prior year’s Adjusted Gross Income or the prior year’s PIN and date of birth. If you file a joint return, both taxpayers must be authenticated with this information.
How to Get Previous Year’s Tax Information
If for some reason you misplace your tax information from a previous year, you can get a copy of it. Simply visit the IRS website. You can click on the “Get Transcript” tool on the website. You have a choice of getting a copy electronically or you can have one mailed to you. Getting a copy sent electronically is the fastest way to receive a transcript.
Tax Record Storage
If you are still cramming receipts and old tax returns stuffed into an old shoe box on a dusty old shelf, it might be time to rethink your storage. It is important to keep tax records and other documents safe. You can scan important papers into your computer and store on an encrypted flash drives. When you no longer need the record, make sure you destroy them properly. This way you make sure your personal information doesn’t fall into the wrong hands.
We get a lot of questions about record keeping. Long answer is that it depends on the records. If you have specific record keeping questions, feel free to contact us. We can always help you decide what should stay and what should go.