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Filed Your Taxes? What Documents to Keep and What to Shred

Posted  April 10, 2018  by  Lynn Brown

Manilla Folder Labeled "Taxes"
Getting your taxes done on time can be hectic but once taxes are filed, it’s a good idea to review all the documents you gathered and either carefully file them away or securely destroy them.

Tax identity fraud is a huge risk today, and the best way to reduce the risk is to keep all the financial and personally identifiable information under lock and key, and to securely destroy the documents that are no longer needed. 

The Internal Revenue Service (IRS) dictates that records supporting an item of income, deduction or credit on a tax return must be kept at least until the period of limitations for that tax return runs out.

While the period of limitations is officially 3 years, the Financial Industry Regulatory Authority (FINRA) also advises everyone to keep tax-related records for at least 7. According to FIRA, the IRS has 6 years to challenge a return, and the longer retention period will keep you covered.

It’s also important to check with the state tax office to see how many years you need to keep taxes.

Information to Keep For Reference After Filing Taxes

  • Any ‘evidence’ that supports an item of income or credit on the tax return (receipts, bank, and credit card statements, cancelled checks, and other proof of payment).
  • Deduction claims (alimony payments, charitable contributions, mortgage interest payments, retirement plan contributions, etc.)
  • Records relating to improvements on owned property (that could affect capital gains if and when the property is sold).
  • Copies of previous tax returns (they help in preparing tax returns).
  • Automobile titles and home deeds.
  • Pension plan information, and estate-planning documents.
  • Essential records such as birth and death certificates, citizenship papers, marriage licenses, divorce decrees, Social Security cards, and military discharge papers.

Information to Destroy After Filing Taxes

  • Documents that are past the recommended retention period.
  • Documents that have been converted to digital files.
  • Any document that includes names, addresses, and other private information but is not needed for taxes.
  • Documents that have no purpose anymore (ATM receipts, sales receipts, credit offers, expired warranties and insurance papers).
  • Documents that are available online (paid credit card statements, bank statements, utility bills). 
  • Paid out loan documents.
  • Scraps of paper and post-it notes containing confidential data like passwords.

How to Keep Personal Tax Information Safe

Secure Storage

Set up a secure storage system for paper documents. A fireproof safe box is recommended. Converting paper documents to a digital format can simplify storage and retrieval. Save electronic copies to a backup storage device or cloud storage. Store in encrypted form on a flash drive, and secure the drive in a locked file cabinet for safe keeping. Label files based on retention requirements.

Secure Shredding

Never put confidential documents intact into the garbage or recycling bin. Information thieves can piece personal information found in the trash, even if paper has been ripped up manually. When no longer needed, the IRS recommends that paper documents are cross-cut shredded and old hard drives should also be professionally and 100% destroyed.

 

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