Whether it’s digital records saved on the computer or an overflowing filing cabinet, we’ve all gathered a lot of documents over the years! Some items might be necessary anymore. Yet others are still important and need to be kept around. So how do you know which is which?
Some Records to Keep Forever
There are a handful of critical documents that really should be kept indefinitely. These include your home closing documents, home mortgage paperwork, and other major asset purchase or sale agreements. Think of any collector items, such as jewelry, valuable artwork, vintage cars, and the list goes on. (The insurance paperwork for your personal property may not need to be kept forever, but it’s still helpful to have on-hand for certain circumstances.) You’ll also want to retain the copies of your 1040 tax return.
In addition, think about all of your official certificates. Every marriage, birth, and death comes with its own documentation. These records are specific identifiers and need to be retained for everyone in your family.
The documents for any transactions related to your stocks and investments are crucial too. Potential errors on these statements may be sent directly to the IRS. For any of those incidents, you’ll want to make sure the information they receive is truly accurate. These mistakes can even trigger an audit. That’s why being able to cross-reference your own records is key.
Other Reasons for Staying Organized
The basic retention period for your federal tax returns has usually stayed around 3 years. You can calculate this as 3 years from the date of your actual filing, or as 3 years from the tax year itself. It just depends on whether you filed an extension or not.
You might run into another hiccup, though. Tax return errors that show up as more than 25 percent of your tax obligation actually require a record retention of 6 years total. Even worse, if someone has a return that’s determined fraudulent, the holding period will be ongoing.
Additionally, keep in mind that your state guideline may differ. Local and state retention periods might run longer, and if you haven’t held onto those records, you could be put in a difficult position. The state may still want to review your tax returns even after you’ve passed the timeline for a potential federal audit.
Time to Talk with Your Tax Professional?
If you want to beat the rush of the official tax season, we’re happy to connect year-round. Sorting through your records now will help give you a clearer forecast for what’s down the road. More importantly, you might learn that some records are still missing. You don’t want to be caught with any loose ends when it’s actually time to file.
NSO & Company works on both personal and business tax returns. We serve clients in Fishers, as well as the greater Indianapolis area. And we even have some out-of-state accounts! If you have questions, we’re sure to have some answers. Send us a message, and we’d be happy to schedule an initial consultation with you. Let’s see how we can best meet your needs!