The deadline to file taxes this year is coming up soon, but you don’t want to wait to file.
Something you may not know is that even those who owe the IRS can finish and file their returns early as long as payment is sent in by the tax deadline.
Another question you might have regarding your taxes is: How long should you keep tax documents? Here is some good guidance.
With 3 million Americans annually reporting tax identity theft and an estimated $5 billion paid out in fraudulent returns, security is a hot issue. While cyber attacks pose a major threat, not all attackers are found online. They sift through trash and recycling bins to hunt for personal information such as your name, address, Social Security number, or documents that compromise your identity and use what they’ve found to file fraudulent tax returns.
In all reality, dumpster divers are not just looking for second-hand household items. They seek your personal information that could affect your financial credibility down the line.
What to keep
During tax season, you probably have questioned what tax and financial documents you should shred, discard, or keep. Here are some common documents and the recommended length of time you should hang on to them.
- Records of business expenses and property sales that resulted in net operating losses or capital losses
- Records of home improvements or other expenditures that establish basis
- Previous tax returns
- Proof of charitable contributions and receipts related to business expenses
- Bank statements
- Printed pay stubs
- Utility bills
- Brokerage statements
- Medical and dental expense receipts
- Supporting documents for your taxes:
- Tax-reporting statements
- HUD and closing disclosure forms
- Mortgage statements
- 1095s and certificates of exemptions
- Retirement savings annual reports
- Annual brokerage statements
How to protect yourself
Tax records and any supporting financial documents should be kept in secure storage — in a password-protected electronic file and a safe. There are a few best practices for protecting your personal information to which you should adhere.
- When you do decide to discard of financial documents, always use a paper shredder.
- Play it safe. Keep tax documents locked in a safe so that they’re not easily available if your home is ever broken into.
- Identity shield products guarantee to protect your identity, so in the instance of fraudulent tax activity, you are protected. Consider using one of these products.
- Never leave your receipts in a public place. Even if they only display the last few digits of a credit card, hackers still attempt to use this information.
- Duplicate important documents. Store a hard copy and online copy of important documents in a safe area. And make sure the copies are securely stored on your home computer. Update your security software frequently.
Use the same IRS-issued guidelines for hard-copy document storage of tax records as electronic. It should be:
- Legible and readable
- Organized or indexed so the material can be easily located
Thankfully there are safeguards to learn how to discard or keep tax documents. But, here is the best option: Connect with a tax professional to find a year-round partner to answer every question you may have on this issue and more.