We have recently adopted using a cloud-based portal called Smart Vault which gives our clients easy access to their documents. Smart Vault essentially serves as an electronic filing cabinet for all of our client data. I remember the days when a whole room used to occupy paper files of client data. Technology has enabled us to go paper-free and become more efficient with transferring client documents.
Whether you filed your tax return by the April deadline or you filed for an extension, you may be overwhelmed by the amount of documentation involved. With my firm, you will receive very little paper documentation unless requested. We are finding that most millennials don’t like any paper at all! With that being said, it’s a great time to take a look at your records for previous tax years to see what you can purge.
Consider the statute of limitations
At a minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss — or electronically purge — most records related to tax returns for 2014 and earlier years (2013 and earlier if you filed for an extension for 2017).
In some cases, the statute of limitations extends beyond three years. If you understate your adjusted gross income by more than 25%, for example, the limitations period jumps to six years. And there is no statute of limitations if you fail to file a tax return or file a fraudulent one.
Keep some documents longer
You’ll need to hang on to certain records beyond the statute of limitations: your tax return, contact your Accountant for a paper or electronic copy.
W-2 forms. Consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year, you have the proof!
Records related to real estate or investments. Keep these as long as you own the asset, plus three years after you sell it and report the sale on your tax return (or six years if you’re concerned about the six-year statute of limitations).
If you would like an Accounting firm that is equipped with the latest technology, Keith Boyer CPA is for YOU. Come get in the cloud with us!
Keith Boyer, Certified Public Accountant