Alex Zorab is proponent of keeping tax documentation and important records for as long as possible. A certified public accountant and partner at First American Tax Services in Chicago, Zorab helps defend clients in their cases against the IRS, and says far too many people wish they would have kept important documents rather than throwing them away. Here is his advice on why keeping tax documentation for a minimum of six years is so important.
Here at First American Tax Services, we recommend that our clients keep their records for as long as they can. But if they aren’t willing to hold onto each piece of paper forever, then the next best bet is for them to hold onto their important paperwork for at least six years.
A number of other tax preparation offices recommend clients keep their tax documents for only three years, but we don’t advise getting rid of paperwork and documents that quickly. In fact, we recommend keeping any paperwork and receipts related to your taxes for as long as you possibly can. At the very least, though, we recommend six years.
Included in the group of paperwork that every person should hold onto are any tax returns, 1099s, W2, or 1099Rs that you received over the years. Basically, everything that you can get your hands on related to your tax return should be tucked away in your filing cabinet or another safe spot for at least six years. Any education papers, or paperwork proving when you were enrolled in classes at a post-secondary institution, should be kept with your tax records, as well.
Basically my advice to clients is to have a cabinet for these kinds of records only. The truth is that Uncle Sam is the most vicious creditor that you can deal with, and if he decides to come after you at some point, then you better have all of your documentation in order.
The IRS has unlimited access to your life and knows everything about your finances. So the only way that you can reign them in is if you have your records to back you up. As long as you have all of your documentation in order, then there is really nothing the IRS can do. Proper documentation can stop the IRS in its tracks when you are trying to prove your case in front of a court.
Of course, one element to recordkeeping that has come up recently is the issue of electronic records. Keeping records stored on your computer is a great idea, and one that I definitely recommend. What some people are doing now is just scanning their financial documents and receipts right into their computer and saving them digitally. That is great but my only caveat to that would be that you should also keep a hard copy of the document. So keep both the scan and the hard copy of your financial income statements and things like that for at least six years, because experience has shown me that it is always better to have both copies, and then if something happens to one version, at least you have a backup.
The truth is that nobody thinks that they are going to get audited in the future, but unfortunately many people will. So my advice to people is that you have to take preemptive action by keeping all your records — everything that you can put your hands on — and making sure they are in a place that is accessible should you need them to defend yourself from the IRS in the future.
