Documents to Keep That Support a Tax Return
Every tax deduction, credit, income source and expense should have a corresponding document to prove it. Err on the side of keeping too much rather than too little. A few suggested documents to retain are listed below.
1. Documents Showing Postmark or Sent Dates
The date that a document is mailed to the IRS is generally considered the date that it is filed. Taxpayers send a variety of critical documents to the IRS, from actual income tax returns to tax payments to audit responses. Regardless of what the document is, retain a copy of the document that shows when it was postmarked. This information will show the IRS a taxpayer’s compliance with deadlines and requested payments or information. Having this data can also help avoid interest and penalties or any claim that information or payments were not sent at all.
2. Canceled Checks and Payment Receipts
Failing to pay the IRS comes with harsh penalties and interest. Getting a penalty notification can be even more frustrating when a tax obligation was already paid. However, showing evidence of payment, such as a photo of a cashed check or direct deposit payment information, can push back against these charges. Mailing receipts and check information can also help the IRS locate lost payments. Without these historical records, it will be very hard to show that a required payment was made.
3. Entity Formation Documents
Business owners: it is a good idea to keep a copy of any formation documents related to the business—from articles of incorporation to assignment of an Employer Identification Number (EIN). This information is sometimes filed with the state, but not always. Having these documents on hand can help address any concerns regarding ownership or formation issues.
4. Electronic Filing Receipts
The IRS reports that 213.4 million returns and other forms were filed electronically in 2022. One might assume that because returns are electronically filed, there is never any issue with delivery. Unfortunately, that is not always the case. Even if a taxpayer electronically files, there is a chance that the IRS does not receive or loses a tax return form or other tax forms. Retain proof of electronic filing to show that a return was filed. This proof might come in the form of a notification or email. Simply printing it off and throwing it in a file or saving it electronically can save lots of headaches and prove that a return was filed.
5. Final Tax Return Documents
Many people will save a draft of their final tax return. However, actually having the signed or e-signed version of a tax return is a better practice. Having a final document will help prove, in many situations, when a document was verified and filed; it can be difficult to determine the difference between a draft and the final version years down the road.
6. Employee and Vendor TINs
It is a good practice for businesses to obtain and retain vendor tax information, such as W-9 forms. These can help the company prove payment to specific entities in the future to address any questions or concerns. Companies should also retain employee tax information, such as withholding forms and payment records. If there is any question about who received payment or how much it was, these documents can help address those concerns.
Quick FAQs Regarding Tax Document Retention
What is the best way to keep or store documents?
Everyone’s tax system will vary. Some people like to print and retain hard copy documents, while others prefer to save their electronic documents on a computer or to the cloud. Regardless of the method, taxpayers may want to consider having a backup method as well. If a taxpayer prints documents, for instance, consider keeping a scanned version on a computer as well. If the taxpayer prefers to save things electronically, it might be a good idea to save the documents in more than one location.
How long should I keep tax returns?
At a minimum, the IRS recommends keeping documents for three years from the date that a return is filed or two years from the date any tax obligation was paid, whichever is later. Under some circumstances, the IRS can look back up to seven years. A good rule of thumb for tax returns and tax records: If in doubt, do not throw it out.
How long does the IRS have to perform an audit?
The IRS tries to conduct audits as soon as possible after a return is filed. Nonetheless, they can audit a return up to three years after it is filed. Once they start an audit, they can ask for records even further back as well.
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