Happy Tax Day! Now, Let's Shred the Old Stuff

By Jon Aldrich

Happy Tax Day! That dreaded day when all of us here in the United States need to make sure that we have settled up with Uncle Sam for the previous year’s tax bill. Maybe you were one of the roughly 72% of taxpayers that received a refund, if so, then this day is almost a non-event, but you still want to make sure you do file that tax return. The IRS doesn’t have much of a sense of humor with those that don’t file a return if they are required to. According to Bankrate.com and IRS data, in 2018, the IRS processed 154.1 million tax returns and of those 111.9 million received refunds on average of around $2,900. However, if you were one of the other 28% that owe the IRS money, today is the day you need to “Pay the Fiddler” if you haven’t done so already for 2018. Of course, you can get a 6 month extension to file the return, but the tax bill is due today. But you already know all this.

I am not here to educate you on the ins and outs of the IRS failure to file and failure to pay tax due penalties or how the IRS calculates interest on taxes due. Nope, we will save that fun stuff for a future article that I am sure everyone will be looking forward to.

I am here to discuss how long to keep the stuff that goes with the tax returns. April 15th and filing your taxes is often a good time to do some “spring cleaning” and get rid of old documents, backup for tax returns, old bank statements and other paperwork that may have stayed well beyond the date you may need to keep them. We are all looking for more storage space and this is one way to help free up some additional space. Of course, you want to be careful as to how you dispose of old documents that may contain sensitive information that you definitely don’t want getting into nefarious hands.

Here are some general, somewhat conservative, guidelines for how long to keep a lot of the documents we have gathering dust in our file cabinets, plastic totes, cardboard boxes and basement floors. This is not an all-inclusive list, but rather an easy starting point if you are considering doing some house cleaning:

Tax Returns and Accompanying Documentation

There is no statute of limitation for failing to file
In most cases IRS can audit your tax return for three years after the return is filed (or the due date, if it is later). Thus, you should at a minimum keep for three years all the paperwork that substantiates the numbers on the tax return.
But, if you understate your income by more than 25% of the gross income shown on the return, the IRS has up to 6 years after the return is filed to audit you.
If the IRS alleges your return is fraudulent, there is no statute of limitations.
To be conservative, I would suggest keeping the tax returns themselves forever, but 6 or 7 years should be adequate for holding onto the tax return backup paperwork. If you are in the habit of filing fraudulent returns, then I suggest maybe keeping all the paperwork forever, but, then again, if you are filing a fraudulent return, that might not be a good idea either!

Keep Permanently

Deeds, mortgages, title papers, bills of sale (keep canceled checks relating to these items as well)
Legal correspondence and other important matters
Insurance records, accident reports, claims and policies
Stock option and other compensation related agreements
Real estate records to substantiate the cost and tax basis of your home or other real estate. Will also want to keep all receipts and records regarding costs of improvements to the property.
Not a bad idea to keep W-2 or final annual pay-stubs forever (although some may tell you otherwise). This could be handy if there is a discrepancy in your Social Security or Pension calculations and you need to prove income in a given year from a long time ago.
Records relating to non-deductible IRA contributions. Need this to track the portion that will be non-taxable to you when you take distributions. This may also be tracked on your Form 8606 on your tax return.
Divorce documents
Estate planning documents

7 Years

Regular Cancelled Checks
Bank Deposit slips and bank statements
Credit Card Statements
Charitable Contribution documentation
Year-end brokerage statements
Mutual Fund annual statements
Loan Documents (7 Years after loan is paid off)

If you have questions about other documents, contact your attorney, accountant or financial advisor for some guidance on how long to keep.

Shredding

You will definitely want to have all the paperwork that you are purging shredded. This is not something that you will be throwing in the garbage. For many people, this can be difficult because they may have a small shredder that they can only feed a page or two in at a time. This can lead to a long, tedious day. For our clients living nearby the Focus offices, we have a solution for you next week.

Focus Shred Day – April 23rd

We have enlisted the services of Paper Recovery Service Corporation to bring their off-site shredding truck to our office on the morning of Tuesday, April 23rd. They offer secure, HIPAA compliant document destruction in bulk. Here at Focus, we have a lot of old, sensitive documents that we are destroying that day and hiring a company that can do it by the box-load and securely is a great benefit to us. We would also like to extend an offer to all of our clients in the area that have documents they need destroyed to bring them to our office before April 23rd or on the morning of the 23rd and we will have them shredded along with all the paperwork we are destroying. There is no charge to you for this, we just want to help you do some spring cleaning and offer a way to help you get rid of old documents that no longer need to be kept around.

We hope that many of you are able to take advantage of the shred truck on April 23rd and look forward to seeing you then or before then.