Tag Archives: income taxes

How Long to Keep Those Pesky Tax Documents

Well, it’s Friday the 13th and I figured what’s more scary than taxes? One of the most frequently asked tax question is how long you must keep tax documents. You want to know the answer? It depends. Isn’t that the answer to everything these days? Anyway, here are some general rules for keeping your records straight with the IRS.

Three Years Might Be Enough

Most tax documents can be shred after three years. Why? Three years is the statute of limitations for tax audits at the IRS. That means that come April 15th, 2009, the IRS can no longer audit you for your 2005 tax return. Why don’t you invite your friends over that day and have a shredding party? You can even have them bring over their papers! However, don’t shred them if you filed for an extension for your 2005 return. You must hold onto those papers until three years after the due date of the extension.

Things to Keep Beyond Three Years

Wait! Step away from the shredder! There are some things that you should keep beyond three years. First, you should keep any records you have on appreciable assets that you currently own. That would include stocks, bonds, antiques, real estate, land, jewelry, etc. Chances are, you will sell these one day and having these documents will be crucial in making sure you are paying the right amount of tax. For example, if you do improvements to your home, it adds to the basis of it. This will end up helping you in the end and may lower your tax on the asset. Make sure you keep all of the documents that shows the costs of the improvements. The IRS is all about showing the appropriate documentation backing your calculations.

Another thing to remember is that if you “forget” to report income, the IRS can go back up to six years. Also, if you plan committing tax fraud, you might as well get used to metal bars because the IRS will find you and they can do that whenever!

Where to Put Your Documents

Now that you know what to keep, where should you keep it? The best place to keep your files is a bank safe deposit box (which is tax deductible if you itemize by the way). If there is no way you can have a safe deposit box, invest in a fireproof safe. Make sure the fireproof safe can take a few hours of heat that way you know it will survive almost anything.

I know it’s a pain to keep all of these records, but believe me, it’s much better than having to pay penalties and interest on taxes that you have to pay due to not having proper records.

Do you have any particular tax questions? Submit them here. As I stated before, I am studying to become an enrolled agent. Answering your questions will be a great learning experience for me!

Need a Professional to Do Your Taxes? How About a Virtual CPA?

Beyond Paycheck to Paycheck wrote an interesting post today about the state of today’s tax preparation. Personally, I’ve always completed my income taxes myself. That is mostly due to the fact that they were not complex. I imagine if my blogging income picks up or I start my own business, they will become more complex and I will need some help. I would not like to go to a chain or use a box if they are that complex. I know I/they would miss something and it may end up costing me. The only other choice would be a CPA and they can be rather expensive. But, with technology changing the way it is, a virtual CPA makes a lot of sense. Why pay for the whole CPA when you can get the tax expertise you need for much less?

Of course, if you can do your return on your own (and maximize deductions), that’s ideal. But there are many individuals who can recoup their tax prep fee (and then some) by getting a real professional involved. Furthermore, given the free 30 minute phone consultation with a Certified Financial Planner, Total Candor Tax Prep seems like a great idea. He seems to be growing his practice by word of mouth, which seems like the right thing especially since it’s a repeat business.

Michael has plenty of discounts available for his services. You can get money off for sending in your returns early, being a full-time student, referring other customers and more! Want to be my referral? Head over there and check it out!

What about you? How will you get your taxes done this year?