What Are Tax Returns?
We all know what tax returns are…or at least, we’ve all heard of them.
Tax returns are forms that are filled with any governing tax entity and they basically showcase income expenses, and whatever else is related to taxes. If you’re living in the U.S., the agency you need to talk to when it comes to tax returns, and pretty much every other tax-related issue, is either the IRS (Internal Revenue Service) or a tax authority which exists on a state or local level. These are usually called Departments of Revenue. Almost every state has one.
There are different versions of tax return forms that you can file with the IRS, and this may vary depending on your business entity, and your specific needs.
What’s In A Tax Return?
A tax return document usually includes the following (not counting the personal information provided):
- Sources of income
- Deductions
- Tax credits
Again, the specifics of these may vary depending on which jurisdiction you’re located in.
How Long Should I Keep My Tax Returns?
Tax returns are forms, or documents. And we’ve all heard horror stories of people hoarding drawers after drawers of paperwork in the hopes that they might come in handy one day. That being said, you need to make a habit of keeping records, whether taxes or otherwise.
But, seriously, how long should someone keep their tax returns?
Well, the IRS itself is a drill sergeant when it comes to tax returns. Here’s what the IRS itself has to say:
“The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.”
If the term “period of limitations” confuses you, it’s basically a time-frame during which you can fix your tax return.
The IRS recommends that the tax returns should be kept for at least three years. That’s the usual case. You can also scan them, and keep both digital and physical files. If you’re keeping digital scans, it’s best to store them on a flash drive so you won’t lose them in case something goes wrong with your computer. As for the physical ones, make a special folder just for your tax returns so they won’t get lost, and you can easily refer to them if needed.
There might also be times when you’d have to keep the tax returns for longer than 3 years, in cases where:
- You do not file tax returns
- You’ve filed a fraudulent return
- You did not report income which you should have
- The income you did not report exceeds 25% of the gross income shown on your return
- You file a claim “for a loss from worthless securities or bad debt deduction”
As you can see, there are a lot of do’s and don’ts when it comes to keeping records of tax returns. Generally, we at Prestige Auditors recommend that you keep copies of all of your returns, as you never know when they might come in handy. One more thing you should definitely keep is your sales tax exemption certificate. Don’t have one? It’s your lucky day! Give us a call at Prestige Auditors and we will get one for you ASAP!
