Do I Need to Keep That?

It happened again last week. A tax client e-mailed me to ask for a copy of her 2016 income tax returns. She was refinancing her home and the lender had asked for two years of tax information. As required, I had sent a file copy of her tax returns after they were electronically filed. She apparently did not save it.

I was happy to send her another copy. But what were her options if I was not available to help? What if she had prepared her own returns and not kept a copy? Is this really a big deal?

The short answer is “yes”. Taxpayers should keep a copy of their past tax returns and supporting documents for at least three years. Taxpayers claiming certain securities or debt losses should keep their tax returns and documents for at least seven years.

Here are five tips about prior-year tax records:

  1. Save time – Keeping copies of prior year tax returns saves time. Often, prior-year tax information is needed to file a current year tax return or to answer questions from the IRS.
  2. Validate identity – Taxpayers using tax filing software for the first time may need their adjusted gross income (AGI) amount from their prior year’s tax return to verify their identity. Learn more at Validating Your Electronically Filed Tax Return.
  3. Order a transcript – A tax transcript that summarizes tax return information and includes AGI can be ordered for free from the IRS. Transcripts are available for the current tax return, plus the past three tax years. Plan ahead, though, because delivery typically takes five to 10 days from the time the IRS receives the request.
  4. Get an actual tax return copy – This option costs $50 per copy and requires taxpayers to complete and mail Form 4506 to the appropriate IRS office listed on the form.
  5. Verify tax payments – Good news! You don’t need a transcript or return copy to find out if you owe the IRS. Taxpayers can verify payments or amounts owed in the last 18 months. Just click on this link – view their tax account.

The bottom line is simple. Save time and aggravation by keeping prior-year tax information. Most taxpayers should keep tax returns and supporting documents for at least three years, seven years for taxpayers with securities transactions or losses. Keeping these records yourself prevents all the time and effort to get them from your tax preparer or the IRS.