Once tax season is over, you might think about getting rid of all of your tax records. You shouldn’t be doing that as the IRS can audit you if they believe that you’re skipping out on paying your fair amount of taxes. Without having tax records to back you up, you might have to end up defaulting on paying more.
However, you do have other reasons why holding onto your tax records could benefit you. Take a look at these timeframes to know how long you should keep certain tax records.
For a whole year, you should be keeping all of your pay stubs. The reason for this is that you need to compare your pay stubs to your W-2 at the end of the year, ensuring that everything lines up for what you were paid and how much you paid in taxes.
Once you’ve compared your pay stubs to your W-2, you’re able to throw them out. Just make sure that you don’t throw out your W-2.
For three years, you need to keep all of your tax records that show how much you made in income during a specific year. This includes W-2, 1099, and 1098 forms for income. You also need to make sure you keep other miscellaneous financial records.
Examples of miscellaneous financial records to keep include receipts for charities, health savings accounts, and more. You’re good to throw out all of these records, though, if you haven’t received an audit after three years.
If you’re self-employed, you might end up not reporting a good portion of your income to the IRS. It might seem like you’re ok after waiting three years, but the IRS can audit you if they find out that you didn’t report 25% or more of your income during a certain year. For this reason, you should be keeping all of your 1099s for up to six years.
For those with over $5000 in foreign financial assets, you should keep forms around for six years. Foreign assets can easily become a huge hassle if you haven’t reported them correctly. So ensure that you keep these tax records around for at least six years after reporting them.