The case for keeping your income tax returns forever

You may recall from a past column on record keeping that you keep copies of your tax returns forever. Did you read that, and if so, did it make your wonder along with so many who wrote to ask? Wonder no more.

Dear Mary: Why do you recommend people keep tax returns forever? The IRS has electronic copies of every return and can only go back seven years for audits.

– Call Me Curious

Dear CMC: I don’t know if you have ever asked the IRS for anything, but I can promise you don’t want to rely on that organization to be ready and willing – let alone able – to retrieve what you need when you need it.

Social Security benefits. To protect your Social Security or retirement benefits. When you file for benefits like a bazillion years from now, the Social Security Administration 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. It could show zero-dollar amounts for many years when in fact you were fully employed and paying in!

While you should check your pay stubs and earnings against your Social Security 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 when you file for benefits, 20 years from now, you’ll need proof.

The dreaded audit. If you own depreciable supplies, assets and equipment for your business, or have sold or used the tax-free exchange option for them, and then face an audit years later, the IRS can request the original purchase documents – even if the purchase was way beyond the six-year limit – if the items are still on your tax return as depreciable assets. Whew! 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 – 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 even 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, but 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 money you’ve set aside for retirement

1. The rules for the state you were living in when you made some contributions may have your state had a lower deduction at that time, which could mean when you take those funds in retirement, your distribution won’t be taxable for state purposes.

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

Even though you are certain know that the IRS, your accountant, your investment broker and perhaps even your mother all have copies of your tax returns, do not depend on them. Your accountant could be retired and fishing in Alaska, and 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: 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 it to send you copies of all the years you are missing.

I wouldn’t hold my breath.

Dear Mary: My husband and I keep receiving requests from the U.S. Census Bureau to schedule an interview to discuss our household expenditures. This survey is supposedly voluntary.

Have you ever heard of this? We don’t want to participate; we feel it’s an invasion of privacy. We trust your advice and perspective. What do you think?

– Marie

Dear Marie: The U.S. Census Bureau does use surveys as a method of collecting and analyzing social, economic and geographic data to provide information about the conditions of the United States, states and counties. But unlike the census it takes every 10 years, in which citizens are required by law to participate, these surveys are completely voluntary.

You are wise to be suspicious and concerned about your privacy. The Census Bureau warns folks on its website about scam artists posing as bureau officials. If you do not want to participate in a survey, opt out. You have every right to do that.

If you suspect this is a scam artist after your information or you want to verify that whomever is contacting you is legitimate, contact the U.S. Census Bureau directly.

This article provided by NewsEdge.