All About Taxes

If you’ve filed your taxes, congratulations and job well done! (If you filed for an extension, see the important note below.)

Now that you’ve filed, what should you do with all of those forms, receipts, and documents? What are best ways to keep that information safe? Oh, and how long should you keep tax information?

The Arnold and Mote Wealth Management team has easy tax recordkeeping tips and best practices for protecting your information.  

* Important note about tax extensions: If you filed an extension (IRS Form 4868), remember that’s only an extension to file your federal return, NOT an extension to pay taxes owed. You should still estimate your liability and pay that amount in order to minimize penalties and interest. Need to file an Iowa return? If you’ve paid at least 90% of your total tax liability by April 30, you have an automatic six additional months to file your Iowa return without penalty, but you will owe interest on any tax still due after April 30.

Which tax documents should you save and for how long?  

We recommend keeping your actual tax returns forever.

Save any information that substantiates the information on your tax return, especially anything related to income, deductions, and credits in the unlikely event your return is audited.

The IRS tries to audit returns as soon as possible after they are filed, but can audit returns filed within the last three years and sometimes further back for substantial errors. On its website, the agency says it doesn’t usually go back more than six years.  

The IRS advises taxpayers to keep records for anything reported on a tax return until the period of limitations expires for that return. The period of limitations vary based on the tax situation, but a good rule of thumb is a minimum of three years from the April filing deadline for all documents.

The IRS recommends keeping certain records longer:

• Four years after the tax is due or paid, whichever is later, for your employees’ employment tax records  
• Six years from the date you filed if you did not report income that’s more than 25% of the gross income reported on your return, or if the income is attributable to foreign financial assets (six years because that’s the length of time the IRS has to assess tax)
• Seven years from the April filing deadline if you’ve filed a claim for overpayment resulting from a bad debt deduction or a loss from worthless securities (you have seven years to claim an overpayment)
• Property records until you no longer own the property
• Forever for any documentation in the years you did not file a return

What are the safest ways to save and protect documents and files?

It’s important to take care in how and where you save anything containing sensitive personal information that could be used by criminals to exploit your identity and/or finances.

Paper documents should be kept under lock and key, preferably in a fire-proof safe at home or in a bank vault.

Consider digitizing paper documents using a high-quality scanner or mobile app, or reach out to our team if you’d like help scanning your documents. Be sure to shred paper before recycling or throwing away. If you don’t have a shredder, drop off the documents at our office.  

Follow these easy tips to help protect your digital files and your identity online:

• Keep your computer safe by using security software with firewall and anti-virus protections.
• Save files in a location that requires a password.
• Use a password management tool like LastPass.
• Regularly back up your electronic data. Consider doing so on both a hard drive and cloud location that requires a password.
• Only save to or download files from websites you know and trust.
• If available, use multi-factor authentication.
• Use a pop-up blocker on browsers like Chrome and Internet Explorer.

Tax season might be over for you but it’s never over for criminals!

If you receive a call from someone claiming to be the IRS or a tax agency (or your bank or credit card company) who asks for information or threatens lawsuits or jail, do not share any information and hang up immediately.

The IRS does not initiate contact with taxpayers by email, text messages or social media channels to request information. Report tax-related impersonation calls at www.tigta.gov.

If you receive an email or text message from someone claiming to be any of the above parties, do not click any links, open attachments, or reply.  Forward suspicious emails to the Treasury Inspector General for Tax Administration at phishing@irs.gov.