I. Introduction
As a taxpayer, you’re required to file a tax return annually, which comprises a detailed report of your financial earnings, expenses, and payments to the government. These returns contain critical information that should be safeguarded to ensure compliance with the Internal Revenue Service (IRS) regulations. This article explores how long should you keep tax returns, considering various factors such as IRS regulations, record-keeping duration, digital storage, and secure disposal methods.
II. Minimum Keeping Period
The minimum record-keeping period outlined by the IRS depends on various factors, including your income bracket, deduction claims, and filing status. Generally, the IRS requires taxpayers to keep tax documents for a minimum of three years from the date of filing or the tax due payment date, whichever is later. For instance, if you filed your 2018 tax returns on June 15, 2019, the keeping period should extend to June 15, 2022.
Moreover, the IRS recommends keeping certain records for a more extended period, particularly those regarding real estate transactions, stock trades, and retirement plan contributions. These records come in handy when assessing tax liabilities, calculating profits, or claiming refunds. Therefore, it’s crucial to keep appropriate tax returns documents for a considerable duration, approaching a decade or more.
III. Factors Affecting the Keeping Duration
Various factors can affect the duration for keeping tax returns, including late filing, revisions, audits, amended returns, and state tax returns. Failure to comply with the IRS regulations on record-keeping attracts hefty fines and other penalties.
A. Late Filing
If you’re unable to file your taxes on the scheduled date, you can request an extension of up to six months to file. However, it’s essential to note that this extension doesn’t affect the record-keeping period. Therefore, even with an extension, you’re still required to keep your records for the minimum duration required by the IRS.
B. Revisions
You may need to revise your tax returns in case of errors, omitted deductions, or revised income statements. In such a case, you need to keep the revised returns for the minimum keeping period, starting from the revision date.
C. Audits
The IRS may audit your tax returns, which demands more in-depth scrutiny of your financial records. In such cases, you’ll need to keep your tax returns records for more extended periods, with some records dating back up to ten years.
D. Amended returns
If you file amended returns, you should keep these records for the minimum period recommended by the IRS, starting from the amendment date. This duration applies regardless of whether you filed amended returns to increase or decrease the amount of tax due.
E. State tax returns
You should also keep your state tax returns records for the minimum duration recommended by the particular state. However, some states mirror the IRS rules on record-keeping. Therefore, it’s crucial to verify the state laws on record-keeping duration to comply with legal requirements.
IV. Digital Storage
In recent years, digitization has transformed various sectors, including the tax returns documentation process. As such, digital storage has gained immense popularity, thanks to the convenience, ease of use, accessibility, and cost savings. The main advantages of digital storage include:
- Reduced paperwork clutter and storage space
- Improved accessibility even in remote locations
- Incorporates backup and recovery options in case of data loss
- Enhanced security measures to safeguard sensitive financial information
A. Different Types of Digital Storage
Various digital storage options are available to taxpayers, depending on personal preferences, financial resources, and specific devices. Some common types include:
- Cloud-based storage- This refers to storing your tax returns records on remote servers accessible through the internet
- External hard drives- This involves physical storage of your tax returns records in external hard drives, which can be connected to various devices
- USB drives- This option is similar to external hard drives, whereby you store your tax returns records in portable USB drives to access on various devices
B. Considerations for Digital Storage
Before using digital storage options, it’s essential to consider some crucial aspects, such as:
- Storage duration- Ensure that the storage duration matches the minimum keeping period recommended by the IRS regulations
- Security controls- Insist on adequate security protocols such as encryption, access controls, virus scans, and backup options to protect your sensitive financial information
- Cost-effectiveness- Digital storage options come with varied prices. Choose an option that’s cost-effective, with no hidden charges
V. Safe Disposal
After the set storage duration, it’s essential to dispose of your tax returns records safely. Failure to do so may lead to unauthorized access to your sensitive financial information, which exposes you to identity theft and fraud. Avoid throwing away these records indiscriminately or leaving them in the open.
A. Importance of Safe Disposal
Safe disposal of tax returns records safeguards your privacy and fiscal wellbeing by mitigating the risk of identity theft and fraud. Moreover, it frees up space in your storage devices and reduces clutter.
B. Types of Secure Disposal Methods
To dispose of your tax returns records safely, you can use various secure methods, including:
- Shredding: This involves cutting your tax returns records into small pieces using a shredder
- Burning: You can burn paper documents safely using a fire pit or burn barrel
- Electronics recycling: You can dispose of digital storage devices by using certified electronics recyclers
C. Best Options for Secure Disposal
The ideal method depends on various factors, such as the record’s nature and accessibility and your personal preferences. Therefore, to choose the best option, consider:
- Cost-effectiveness
- Security and privacy
- Environmental sustainability
VI. Conclusion
To avoid penalties and comply with IRS regulations, it’s essential to keep your tax returns records for the recommended duration and dispose of them safely. The minimum duration for record-keeping varies depending on various factors, including income bracket, deductions, and filing status. Digital storage offers a convenient, cost-effective, and secure alternative to traditional records storage. On the other hand, safe disposal methods such as shredding, burning, and electronics recycling ensure privacy, security, and environmental sustainability. By following these guidelines and complying with IRS regulations, taxpayers can safeguard their sensitive financial information and promote financial wellbeing.
Therefore, keep your tax returns for at least the minimum duration recommended by the IRS, factor in the revision dates and audits, and understand the laws guiding state tax returns. Embrace digital storage options, ensuring adequate security protocols, cost-effectiveness, and storage duration, among other considerations. Similarly, dispose of your records safely, considering the nature of the document, cost-effectiveness, privacy, security, and environmental sustainability.
