Tax Records: What to keep and how to keep it

MAZUR_BLOG_GRAPHIC_2-20-19

Why do I need to keep tax records?
In the event that you are audited, need to amend a return, have an issue with identity theft, or any number of similar issues, having complete tax records can be a huge help and sometimes even a solution. Tax records are required to apply for all loans and in case you are selected for an audit. You must keep tax records for yourself, the IRS and for the state(s) where tax returns are required to be filed.

If you have not been keeping proper records, you may request a free transcript from the IRS for the past three years that you have filed returns. Go to IRS.gov and use the “Get Transcript” tool to get started.

How long do I have to keep my tax records?
How long you keep your records really depends on what kind of return you file and what sort of tax records you are keeping. The standard duration of time the IRS suggests taxpayers to keep complete records of their tax returns is 3 years. However, there are circumstances that require records to be kept for longer. For example, New Jersey taxpayers must keep complete tax records for the previous four (4) years.

Further:
• Keep records for 7 years if you file a claim of loss from worthless securities or bad debt deduction
• Keep records for 6 years if you do not report income that should have been reported and it is more than 25% of the gross income on the filed return for the relevant year.
• Keep employment records for 4 years after the tax becomes due or is paid, whichever is later.
• Keep records for 3 years after the original return was filed or for 2 years after the tax was paid, whichever comes later, if you file a claim for a credit or a refund.
• Keep records indefinitely if you do not file a return or file a fraudulent return

What kind of documents do I need to ensure that my records are complete?
There are a few key documents that you ought to keep with your returns to ensure that your records are complete.

Income:
• W-2(s)
• 1099(s)
• Bank Statement(s)
• Brokerage Statement(s)
• Alimony Received *see our blog post on new alimony rules*
• K-1(s)
Expenses & Deductions:
• Receipts
• Invoices
• Alimony Paid *see our blog post on new alimony rules*
• Statement(s) from charities *see our blog post on new rules for charitable contribution documentation*
• Gambling losses
Home/Property:
• Closing Statement(s) from purchases and sales of real property
• Purchase and Sale Invoices
• Property Tax Assessment(s)
Retirement Account:
• Form 5498 (IRA Contributions)
• Form 8606 (Nondeductible IRA Contributions)
• 401(k) Statement(s)
• Distribution Records
• Annual Statement
Other Investments:
• Transaction Data (including individual purchase or sales receipts)
• Annual Statement

How do I store my records securely?
There is no standard or mandated way to store your tax records. It is totally up to you! However, there are ways to ensure the security of your records and limit the chance of identity theft and fraud. It is suggested that you scan paper tax returns and financial records digitally, encrypt or password protect them, and then download them onto a flash drive or other external device. As for paper copies, limit the amount of copies you keep and who has access to them. Any document with a social security number or employer identification number should be similarly protected.

You may keep your records on paper in file folders or in banker’s boxes, keep digital copies on a computer or tablet, a mixture between the two, or your own unique method. As long as your records are complete, easy to access, and secure, you can store them however you see fit.

How do I properly dispose of my records once I no longer need them?
Once their usefulness has expired, tax records must be properly disposed of to avoid any identity theft or fraud using your information. Shred all paper copies of returns and documents completely. All electronic copies should be deleted and the hard drive of the device used to store them should be overwritten or destroyed. Remember that computers, tablets, mobile devices, and back-up hard drives among other electronics store information in different places. You may forget to check or not know that sensitive data is being stored there. Be sure to remove any and all information from your devices before disposing of them. This may sometimes require you to use a special disk utility software.

Mazur & Associates CPAs and Business Advisors, PC is more than just an accounting firm. We are here to ensure your security as well as safeguard your tax returns and supporting documentation. We want to make sure that each of our clients keeps their records properly, completely, and securely for the duration they are stored. Please call us with any questions you may have about record keeping and we will assist you in any way we can! Our number is (732) 936-1230 and we are open Monday through Friday from 8 A.M. to 5:30 P.M.

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