The Patrick Parker Realty Tax Season Blog Series:
So You’ve Filed Your Tax Return. Now What?
Contributions by Miranda Marquit, Wise Bread
Finally! You’re done filling out your tax return, and the IRS is pleased.
Keep Copies of Your Tax Return(s)
You should keep a copy of your current return, and all the documents that support it. This means that you should keep copies of receipts (including from charities), leases, 1099 forms, and other documents that back up your claims to deductions and credits. A file of tax documents, kept updated throughout the year, can ensure that you have everything you need each year.
Filing your latest return, though, doesn’t mean that you should get rid of previous years’ documents. The IRS can choose to audit a return three years back, so you should keep your tax return records for at least three years from the date your return was due.
If the IRS suspects you of some type of evasion attempt, you will need tax returns going further back than that. If your unreported income amounts to more than 25% of your gross, you need that return for six years after the filing date. If you have taken a deduction for a bad business debt, or for a worthless security, you should keep your tax return for seven years after the filing date.
The IRS web site also recommends that you keep your records indefinitely if you file a fraudulent return. There are also other rules associated with keeping employment tax records (four years after the due date employment tax is paid or becomes due) and filing a claim for a credit or refund after your return has already been filed (the later of three years after filing the original return, or after two years from when you paid the tax).
Most of the time, the IRS confines its audits to returns filed in the last three years from the date of filing. However, if you don’t have the proper documentation on those audits, or something is uncovered that alerts the IRS to the fact that you might not be reporting everything properly, your older tax returns will be called into question.
As long as you are careful only to claim income, losses, deductions, and credits that you have documentation to support, you should be able to clear up any misunderstandings with the IRS fairly easily, and not have to worry about how far back your tax return records go (beyond the three years for ordinary audits).
What If There’s a Mistake on Your Tax Return?
If you have already filed your tax return, and you realize that a mistake has been made, you will need to file an amended tax return (Form 1040X, along with supporting Forms and Schedules). You can file an amended return anytime within three years from when you filed your original tax return, or within two years from when you paid tax that you owed.
So far, Form 1040X still can’t be filed electronically. If you need to file an amended return, you will have to download the form from the IRS website (fortunately, you can fill out the form on your computer and print the hardcopy with your responses), and mail the form in, along with the appropriate documentation regarding the mistake you are fixing.
Keep Good Records
No matter the situation, you should keep good records. Keep all of your tax documents together in a safe place. You can scan them into a digital file if you don’t want bulky hardcopies taking up space. Just make sure you have a back up somewhere, just in case your original digital copy is destroyed.
The better your records, the less you have to fear from a tax audit – the greater your peace of mind.
The Blog Series will cover many topics such as How do I qualify for a home seller break?, How do I qualify for a home buyer break?, Do I have to report the home sale on my return?, What is the gain on the sale of my home?, What Are Home Renovation Tax Credits?, Deducting Mortgage Interest, Taking the First-Time Homebuyer Credit, How to Avoid Taxes on Canceled Mortgage Debt, Tax Incentives as they relate to Life’s biggest transitions, such as Marriage, the Birth of a Baby, Divorce, or the death of a Spouse and much more. New posts in this Blog Series will be published twice weekly.
For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.