Daily Deduction: Which Tax Stuff Do You Save?


Did you just file your tax return? (Are you going to soon?)

Either way, you may be wondering what to do with all the loose papers cluttering up your den (or the loose data on your desktop). Record keeping is an important part of tax season, and doing a little bit of housework now can save you a lot of money later. No specific law requires you to keep the 1040 tornado that’s blown through your house, but here at the Daily Deduction, we have a few filing cabinet rules of thumb.

First, save all of your receipts. Whenever you claim a tax refund, you must be able to prove that you actually overpaid your taxes. If you are audited and don’t have a convincing record of your expenses, the IRS can completely cancel your deductions. Did you claim business expenses, tuition, or charitable deductions? The proof isn’t in the pudding, it’s in your paperwork. So don’t throw away those receipts.

Second, save all of your tax forms. Since January, you’ve received them from your employer, bank, mortgage company, student loan company and maybe even the state. The IRS should have received copies too, but that’s no reason to shred your own. If trouble arises later and you can’t find your own paperwork, you'll have to file a request, pay a fee and wait to receive copies of the IRS’s records. It’s far better to avoid the hassle by simply saving your own. If papers aren’t your cup of tea, scan them and save them digitally.

Third, save your forms and receipts for six years. The IRS has up to three years to send you a bill for unpaid taxes, and it has up to six years to prosecute you if you fail to report a significant amount of income. We’re pretty sure that you haven’t done either of those things, and with any luck at all, you won’t be audited. But if you are, why not be ready? By keeping your records for six years, you can protect yourself from prosecution and protect your pocketbook too.

Last, but not least, save your W-2 forms forever. W-2 is the form that your employer uses to report your wages. Keeping these forms until retirement, as the IRS recommends, will help you if a problem arises with your Social Security benefits. You can use them to prove how much you worked and earned in any particular year.

So get smart, hit the local OfficeMax (Stock Quote: OMX), and clean up that Mount Everest of tax paperwork that’s burying the dining room table.

Organizing your records won’t just give you a place to put your Panera pastry (Stock Quote: PNRA), it will also protect you and your family from unwanted audit surprises for years to come.

And be sure to check out the complete archive of Daily Deductions.


Related stories:

How to File for a Tax Extension

Late Taxpayer's Guide: What to Do Now

Happy Tax Freedom Day!


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