With the April 15 tax filing deadline behind us, it’s tempting to forget about taxes until next year. But before you do, it’s in your best interest to tie up a few tax-related loose ends.
IRS statute of limitations
- Typical audit window: 3 years from tax return’s due date or filing date, whichever is later.
- Exceptions:
- Underreported income by 25%+? IRS can audit for 6 years.
- No return filed or fraud suspected? No time limit.
Tip: Keep tax returns indefinitely. Most supporting documents can be tossed after 3 years, but save them 6 years for extra protection.
Records to Keep (and for How Long)
Keep at least 3 years (or 6 for extra safety):
- 1099s (NEC, MISC, G)
- 1098 Mortgage Interest
- Property tax receipts
- Charitable donation records
- Retirement plan contribution records
- 529 plan and HSA documentation
Keep even longer:
- W-2s: Until you start Social Security.
- Investment/Real Estate records: As long as you own the asset plus 3 years after sale.
- Retirement account records: Until account is depleted, then 3 more years.
- Carryover/casualty loss support: Until fully used plus 7 years.
- Bad debt/worthless security claims: 7 years.
Other Post-Tax Day Tasks
- Track deductible expenses year-round: Mileage logs for business, receipts for charitable donations, etc.
- Reassess tax withholding: Update your W-4 if you owed tax or had a big refund.
- Check estimated tax payments: Adjust if your income situation changed.
- Safe harbor: Pay at least 100% of last year’s tax (110% if income >$150,000).
What’s this? A letter from the IRS?
After filing your tax return, you may receive a letter in the mail from the IRS. While such letters can be alarming, don’t assume the worst. The letter might simply inform you of a refund adjustment (up or down) based on a math or similar error on your return. If you agree with the change, generally no response is needed. If you disagree, contact the IRS by the date indicated.
Or the letter might propose a change to your return based on information reported by third parties, such as employers or financial institutions. In this case, follow the instructions to respond, include any required documentation, and note whether you agree or disagree with the proposed change.
Of course, an IRS letter could inform you that your return is being audited. It’s important to remember that being selected for an audit doesn’t always mean there’s a significant error on your return. For example, your return could have been flagged based on a statistical formula that compares similar returns for deviations from “norms.”
Further, if selected, you’re most likely going to undergo a correspondence audit. These account for a majority of IRS audits. They’re conducted by mail for a single tax year and involve only a few issues that the IRS anticipates it can resolve by reviewing relevant documents. According to the IRS, most audits involve returns filed within the last two years.
If you receive notification of a correspondence audit, you and your tax advisor should closely follow the instructions. You can request additional time if you can’t submit all the documentation requested by the specified deadline.
Don’t ignore the letter. Failure to respond can lead to the IRS disallowing some tax breaks you claimed and issuing a Notice of Deficiency (that is, a notice that a tax balance is due).
Stay Organized — and Proactive!
Being organized now makes next year easier and protects you if you’re audited. Adjust withholding or estimated payments as needed to avoid surprises.
If you have questions on what files to keep and for how long or how to adjust withholding or estimated tax payments, we can help. And if you receive an IRS letter, contact one of our experts at (888) 388-1040 as soon as possible. We can advise you on complying with any IRS requests.
Mitchell Erickson, CPA and Partner comments,
“Staying organized with your tax records now can save you time, money, and stress if questions ever arise down the road.”
