Yes! You’re finally done filling out your tax return, and it’s on the way to the Internal Revenue Service (IRS). You’re not quite finished yet though! To protect yourself in the event that something goes haywire and the IRS asks to audit your return, you need to keep and maintain reliable tax return records.
Keep your Tax Records Filed Away
You should keep a copy of your current return, and all the documents that support it – no doubt about it. This means keeping copies of receipts (including those from charities), any leases, 1099 forms, and other documents that help support your claims to deductions and credits. A file of tax documents, kept updated throughout the year, will ensure that you have everything you need each tax season.
Just because you filed your latest return, though, doesn’t mean you should get rid of previous years’ documents. The IRS can choose whom to audit (going back to returns three years before), so you should keep your tax return records for a minimum of three years from the date your return was due.
One other thing to know – if the IRS suspects you of a tax evasion attempt, you will need tax returns going further back than that. If your unreported income amounts to more than 25% of your gross, you need that return for up to six years after the filing date. And – If you’ve taken a deduction for a bad business debt as an example, you should keep your tax return for seven years after the filing date! The IRS web site basically recommends that you keep your records indefinitely (forever!) if you file a fraudulent return.
Most of the time, the IRS keeps its audits to returns filed in the last three years from the date of filing. However, if you don’t have the proper documentation on those audits, or something is uncovered that alerts the IRS to the fact that you might not be reporting everything properly, your older tax returns will be called into question. Hope you’re tracking with us so far!
Bottom line, as long as you are careful only to claim income, losses, deductions, and credits that you have documentation to support, you should be able to clear up any misunderstandings with the IRS fairly easily, and not have to worry about how far back your tax return records go (remember, beyond the three years for ordinary audits).
What if you made a mistake on your tax return?
If you’ve already filed your tax return, and you realize that a mistake was made, you will need to file an amended tax return (Form 1040X, along with supporting Forms and Schedules). You can file an amended return anytime within three years from when you filed your original tax return, or within two years from when you last paid tax that you owed.
One thing to keep in mind, a Form 1040X can’t be filed electronically. If you need to file an amended return, you will have to download the form from the IRS website, and mail the form in, along with the appropriate documentation regarding the mistake you are fixing.
Keep Good Records!
We can’t stress this enough here at MBS Accountancy! No matter the situation, you need to keep good records and all of your tax documents should be kept together in one safe place. If you don’t want to keep hardcopy files, scan them into digital files and store them somewhere on the cloud or on an external drive. Just be sure to make a back up somewhere, in case your original digital copy gets destroyed. Back ups of back ups are highly encouraged as well!
The net of it is – the better your records – the less you need to worry about a tax audit. You’ll also feel much more organized.