What Documents Should You Keep for Your Taxes?

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As the world shifts to digital from paper, taxpayers are finding that their pay stubs, airline tickets, and entertainment tickets such as sports events and concerts are being delivered electronically. This shift from paper delivery to electronic delivery is making it more difficult for taxpayers to decide what they should discard, what they should hold onto, and the best methods.

Informal studies have been conducted, and most large banks and financial-service firms have reported that many clients are still choosing to receive their statements by mail. Even with the convenience of going paperless and receiving statements online, paper statements are still popular.

Paper statements can be beneficial, especially for keeping track of financial records. The main reason why financial statements should be saved is for filing income taxes. Financial statements are the easiest way to back up numbers reported on filed tax returns. The Internal Revenue Service will expect that taxpayers will keep records of income, expenses, and deductions. This can include retirement contributions, charitable contributions, mortgage interest statements, student loan payments, and more. The IRS will not require you to keep your cellphone records or utility bills, unless you deduct them or need a payment plan and then only the recent records are required.

For the records the IRS does expect you to hold onto, it is required by law that you keep the records for three years after filing, in case you are audited. As an experienced New York Tax Lawyer, it is strongly suggested that you hold onto your tax documents and financial records for much longer than the necessary three years, because they are the best protection in case of a tax audit. The statute of limitations for taxpayers who have underreported income is six years; however, if fraud is believed to have occurred, there is no time limit.

For taxpayers who choose digital records, they should put in place a backup system. Documents saved on a computer or a flash drive should be backed up on an external hard drive or in the cloud to be certain that they will not get lost or destroyed.

Any records deemed unnecessary by the taxpayer should be shred. This will help avoid identity theft, which is more and more common as there is a shift to digit.

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