If you’ve finally gotten your taxes filed, you’re probably ready to put it all away and move on. But have you considered which documents you should keep? And for how long?
The IRS can request documents pertaining to previously filed taxes for years after you’ve thrown or tucked them all away.
A little preparation can go a long way. Here are some tips for retaining your tax documents and storing them safely.
How long do you really need to store your tax documents?
The IRS website contains a wealth of information on when to retain tax documents and how to safely dispose of them.
In a nutshell, according to the IRS, the length of time you’ll want to hang onto the document depends on the action, expense or event that the document records. In general, that will mean keeping your records that support an item of income, deduction or credit shown on your taxes until the period of limitations for that tax return ends.
The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.
If you are still unsure of how long to keep your tax documents, check with your CPA or tax preparer.
If you still have older documents hanging around, now is a good time to get rid of them. Be sure to shred all unneeded tax documents before disposal rather than simply throwing them away.
Check the retention period for your online tax software.
If you use the same software package to file your taxes year after year, you may not need to do anything else. Policies vary, but most well known tax preparation companies, including both in-person and online providers, keep several years worth of tax returns for their clients.
If you only need to keep your tax records for three years, you may already be covered. Check with the company you have been using to verify the company’s tax document retention policy.
You may also want to download PDF versions of your previous tax returns to your computer or cloud account just to be on the safe side.
Check to see how long your bank keeps tax documents online.
Even if your tax preparation software provider does not have your back, your banks and brokerage firms might. Financial institutions retain records for a period of time for the convenience of their customers, so ask about their retention policies and how to recover older documents.
As with your past tax returns, it is a good idea to download and save key documents. It is far better to have two copies of a given document than none at all.
Consider secure cloud storage for your tax documents.
Once you find out which tax documents you need to retain and for how long, it is time to think about safe storage.
From 1099 forms to the tax returns themselves, the documents contain sensitive information hackers and identity thieves would love to have, so secure storage is absolutely vital.
If you already have a cloud storage account, placing your tax documents there can be a smart move. Just make sure your account is secured with a strong password and, if possible, with an additional layer of two-factor authentication.
Keep backup documents on paper or secure digital devices.
When it comes to records like your tax returns and supporting documents, it is always smart to have a backup. You never know when a sudden outage will strike your cloud account, or a data glitch will render your bank’s older statements unusable.
Making a physical backup is important, but you need to do it safely. If you plan to store your tax documents locally on your hard drive, use an encrypted folder and a strong password. If you store the documents on a thumb drive or external hard drive, lock those devices down with a solid password, as well.
Finally, it is a good idea to make another set of backup copies -- one of which should be printed out and kept somewhere safe. Placing those old tax documents in a safe deposit box, lock box or home safe will ensure they are available when needed without putting your finances or your identity at risk.
This story was first published in July 2020. It has since been updated.