Shocked young woman seeking copies of past Tax Returns

You may recall from a past post on record-keeping, that you should keep copies of your IRS and state Tax Returns forever.

Did you wonder about that? Many of my Dear Readers, like CMC, wrote to inquire. Well, wonder no more …

Shocked young woman seeking copies of past Tax Returns

Dear Mary: Why do you recommend people keep tax returns forever? The IRS has electronic copies of every return, and can only go back 7 years for audits. Thanks for this great blog! Call Me Curious

Dear CMC: I don’t know if you have ever asked the U.S. Internal Revenue Service (IRS) for anything, but I can promise you that you do not want to rely on that organization to be ready, willing, or able to retrieve what you need when you need it.

Assume that sometime in the future you will need to refer to the information you have filed in your past Tax Returns for at least one of these reasons:

SOCIAL SECURITY BENEFITS

You need the information on past Tax Returns (back to the first one you ever filed) to protect your Social Security or retirement benefits. When you file for benefits years from now, the SSA is going to tell you what your benefit will be based on the amount you have contributed. Do not assume that number will be correct.

The administration could show a whole $0.00 in the Contribution column and for many years, when in fact you were fully employed and paying in!

While you should be checking your pay stubs and earnings against your SS Earnings Statement each and every year—correcting or disputing that record as necessary—most people don’t do that.

If you have to prove something 20 years from now when you file for benefits, you’ll need proof.

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THE DREADED AUDIT

If you’re ever audited during the time you own depreciable supplies, assets and equipment for a business that you later sold or used the tax-free exchange option—know that the IRS can request the original purchase documents—even if you are way beyond the six-year limit—if that item is still on your tax return as a depreciable asset. Whew! Complicated, I know and just one of the situations under which the IRS is not limited by time.

If such a thing should happen, you will be relieved to have the proof you need.

THE BIG UNKNOWN

You don’t know what the future holds. You may have moved around a lot in the past—or will in the years to come. Some states have income tax requirements. I hear all the time from folks who suddenly find their IRS refunds being grabbed by other states’ income tax collection systems with no reason or even a warning—10 or even 20 years after the fact! These taxpayers who have had K-1 income had no idea they owed any money to a state they lived in for such a short while.

How comforting it is to be able to open your own box of records to find what you need to prove or dispute your case.

IRA AND RETIREMENT PLAN CONTRIBUTIONS

This is complicated so stick with me: The way I understand it, you could get two payoffs for keeping copies of your tax returns that have to do with the money you’ve set aside for retirement.

1) The rules for the state you were living in when you made some contributions may have changed, such as that state had a lower deduction at that time. Or its rules have changed in some other way so that your situation is different. That could mean that when you take those funds in retirement your distribution won’t be taxable for state purposes. You’ll need to know that!

2) You may have made non-deductible contributions (Roth IRA would be an example) for federal and state purposes during some years. That part of your eventual distribution won’t be taxable for state or the IRS. Do you recall any of those details even now to prove that? Would you know how to find out? Your past Tax Returns hold that information.

Even though you are certain that the IRS, your accountant, your investment broker—for sure your mother—all have copies of your tax returns, do not depend on them.

Your accountant could be retired and fishing in Alaska, your investment broker may have changed careers a dozen times since you last spoke.

As for your mom, honestly, I don’t think you gave her copies because adult kids often have creative memories when it comes to stuff like that.

Trust me on this: You will never regret keeping your own copies of your Tax Returns—and knowing exactly where they are.

If you haven’t kept them in the past, start now. Then give the IRS a call and ask them to send you copies of all the years you are missing.

I wouldn’t hold my breath.

Yesterday’s Post: Get Clever with Leftovers: Coffee, Meatloaf, Mashed Potatoes

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