Save Your Tax Returns Forever
We usually worry about tax returns until April 15th and then they tend to go into a filing cabinet somewhere, never to be thought of again.
At least, until this year, that is what I usually do.
Just last week a client of mine sent me a revised 1099 from 2008.
I haven't even worked for this client since May of 2008, which, of course, made it that much more difficult to find the original because it hasn't been so much as looked at in a year and a half! Turns out the 1099 had a completely different amount than what I was actually paid.
The amended 1099 is just one example of why it is so important to always make sure tax returns are filed away where you can get to it, just in case.
In my filing cabinet I always hang on to tax returns, check stubs from my client, and account receivables.
The question is not whether we should file them as much as it is how long should we keep them and is hard copies the only option.
The typical recommendation is three years.
This does not include, of course, if you owe extra money, didn't file a return, or you anticipate any problems.
In any of the above listed scenarios you should keep your tax returns for ten years.
Normally the IRS has a three year stature for auditing but, depending on the situation, they can go back as many as ten years.
A great deal of businesses keep detailed business transactions for five years.
After five years you can get rid of internal records but it is best to keep more broad paperwork, such as tax returns, for ten years.
If you are not US based, audit policies may differ.
Actually, you don't have to keep a hard copy on hand.
Some people, freelancers in particular, may have a hard time keeping up with paper copies because they move around so much.
In this case it is perfectly acceptable to keep computerized copies of your tax paperwork as long as you have them in at least two locations.
There are some conditions in which IRS will ask for a hard copy, but this is becoming less and less common.
If you are concerned about this, it is best to speak with a tax professional.
However, you do have to be certain that you can retrieve this paperwork, even in the event that your computer crashes.
The easiest way to do this is to save them to an off site backup.
This is the minimum precaution you will want to practice with all important files and paperwork.
At least, until this year, that is what I usually do.
Just last week a client of mine sent me a revised 1099 from 2008.
I haven't even worked for this client since May of 2008, which, of course, made it that much more difficult to find the original because it hasn't been so much as looked at in a year and a half! Turns out the 1099 had a completely different amount than what I was actually paid.
The amended 1099 is just one example of why it is so important to always make sure tax returns are filed away where you can get to it, just in case.
In my filing cabinet I always hang on to tax returns, check stubs from my client, and account receivables.
The question is not whether we should file them as much as it is how long should we keep them and is hard copies the only option.
The typical recommendation is three years.
This does not include, of course, if you owe extra money, didn't file a return, or you anticipate any problems.
In any of the above listed scenarios you should keep your tax returns for ten years.
Normally the IRS has a three year stature for auditing but, depending on the situation, they can go back as many as ten years.
A great deal of businesses keep detailed business transactions for five years.
After five years you can get rid of internal records but it is best to keep more broad paperwork, such as tax returns, for ten years.
If you are not US based, audit policies may differ.
Actually, you don't have to keep a hard copy on hand.
Some people, freelancers in particular, may have a hard time keeping up with paper copies because they move around so much.
In this case it is perfectly acceptable to keep computerized copies of your tax paperwork as long as you have them in at least two locations.
There are some conditions in which IRS will ask for a hard copy, but this is becoming less and less common.
If you are concerned about this, it is best to speak with a tax professional.
However, you do have to be certain that you can retrieve this paperwork, even in the event that your computer crashes.
The easiest way to do this is to save them to an off site backup.
This is the minimum precaution you will want to practice with all important files and paperwork.