Is paperwork taking over your entire desk or filing cabinet? Having piles of paper around are pain and managing them is difficult. Does looking at it make you think about going on a shredding spree? Hold on? Before you do that, you should make sure which paperwork to keep and which ones to get rid of. Tax records pile up easily but wait before you throw out last year’s tax return documents. Usually, you would have a time period of 3 years to amend your returns and the IRS initiates the audit after 3 years of the due date of your return.
There are some exceptional cases where you need to retain the documents for longer while holding on to the copies of the return indefinitely is recommended. Houston residents can get paper shredding done with the help of reliable third-party services. Check the website of ‘Data Shredding Services’ to know more about getting rid of documents. Be aware of the retention time of documents before disposing of your paperwork.
One year: Retain pay stubs until checking them against W -2s. If the totals match, it is safe to shred them. A similar approach ought to be followed with monthly brokerage statements. Hold them until they match with yearly statements and 1099s.
Three years: In general, you should hold documents that support income and deductions for a minimum of 3 years after you file your return.
The rule also applies to:
- Tax returns
- W2 Forms
- 1099 Forms
- 1098 Forms
- Receipts of charitable contributions
- Contributions made to retirement savings account that is tax-deductible.
Six years: If you cease to report at least 25% of your gross income, The IRS can initiate an audit up to 6 years. Self-employed people usually receive multiple 1099s since they may have business income from many sources and it is possible to miss reporting one. It is therefore advisable to keep the receipts and expenses for 6 years.
Seven years: Sometimes you loan money to someone who doesn’t pay you back within the timeframe or your stock picks didn’t turn out well. In such cases, you write off those as worthless security deductions. However, you will have to keep the related documents and records for at least 7 years.
Tax documents when goes into the wrong hands can be used for fraudulent process transactions. It is very important to shred the old documents after their retention time since they contain sensitive information.