Where has the year gone? There are only weeks left until we turn the calendar to 2017. As you start off the New Year, you may wonder which 2016 records you need to gather for tax planning.
You may also wonder how long to keep documents related to prior year returns. Cleaning out the back of the closet and working on organization are often New Year's resolutions, so in this blog we answer some of these questions.
A general rule and several exceptions
First, we start with the general rule. The IRS advises that you hold onto copies of your tax returns and all supporting documents for three years. Tax records are those that support claimed income, deductions and credits. Holding onto these means you'll be able to locate information if the IRS has questions about your return or you need to amend a tax return.
Here are several exceptions to the general rule when you should keep documents for seven years:
- Records relate to the sale of a property
- You claimed a bad debt deduction or took a loss on a worthless security
There are two cases when you need to retain documents indefinitely: you did not file a return or the IRS alleges you filed a fraudulent return.
Health care records
While you do not need to send proof of health coverage to the IRS, you should keep these forms along with information about the type of coverage, premiums paid and any advance premium tax credit you received in 2016.
These documents follow the general rule and you should store them in a safe place for three years.
Proper storage and destruction
Most tax documents include sensitive identification information. Scanning paper records to encrypt and securely store them on a flash drive or portable hard drive is often a good idea to reduce clutter.
Take care when getting rid of an old computer or paper tax records. A shredder or proper wipe of a hard drive can ensure that your identification information does not fall into the wrong hands.