Tax season eventually comes to a close, but you'll always have your tax return and other paperwork to serve as a reminder of that time -- at least until you throw it out. Hopefully, you're not doing that the second you've gotten your refund or paid your tax bill for the year, though, because that could cause huge problems if the IRS decides to pay you a special visit.
That's not to say you can never throw out your old tax paperwork. You just need to know when it's safe to do so and how to get rid of those documents the right way. There are three things you should know before you decide to dump your old tax returns in the trash.
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1. You need to keep your tax returns for at least three years
The IRS recommends that everyone keep their tax returns for at least three years, or two years from the date you paid your taxes, whichever is later.This way, if it decides to audit you, you should have all the necessary paperwork available. Throwing these documents away ahead of schedule only hurts you because if you're audited, the government could disallow legitimate tax deductions if you don't have the paperwork to prove that you were eligible to claim them.
You should hold onto your tax return for six years if you failed to report a substantial amount of income on your tax return, but hopefully, this doesn't apply to you because you should never try to hide income from the government. The IRS recommends holding onto your tax returns for seven years if you filed a claim for a loss of worthless securities or a bad debt deduction, and you should hold onto your tax paperwork indefinitely if you did not file a return for a given year or if you filed a fraudulent return, which again, you're hopefully not doing.
2. Always verify the accuracy of your Earnings Record first
The Social Security Administration keeps track of your income in your Earnings Record, which you can access by creating a my Social Security account. This is the income that's ultimately used to calculate your Social Security benefit when you're ready to claim, so it's important to make sure it's correct. It usually is, but little things such as accidentally transposing digits in your Social Security Number when filling out paperwork with a new employer or forgetting to notify your company about a name change can result in income that's reported incorrectly or not reported at all.
If there are errors in your Social Security Earnings Record, you'll need your old tax returns to prove your real earnings to the Social Security Administration. You must submit a copy of your old tax return for that year or any other paperwork you have with a Request for Correction of Earnings Record form. If you don't have any documents to prove your claim is legitimate, the Social Security Administration may not do anything about it, and then you could lose tens of thousands of dollars or more in Social Security benefits over your lifetime.
3. Shred old paper returns so identity thieves can't access them
Deleting digital copies of old tax returns is easy, but if you have old paper returns, you can't just put them in the trash. They contain a lot of personal information about you that identity thieves would love to have, such as your birth date, Social Security Number, employment information, and address. With this information, it's easy to open up new credit accounts in your name, and that can create a major headache for you later.
When you've verified that it's time, always shred old paper returns, or dispose of them in some other way that will ensure no one else can recover information from these documents.
You might decide to get rid of your old paper returns but retain digital copies just in case you'd need them for some reason in the future. If you decide to do this, make sure you have a password on your computer so that unauthorized users cannot access your important financial documents.
Your old tax returns don't become irrelevant the second you've paid your tax debt or gotten your refund for the year. Keep in mind the three points listed above before throwing yours out so you don't run into any problems later.
