After Tax Day Checklist: IRS Record Retention and Tax Planning Steps

 IRS Statute of Limitations: How Long Records Matter

In most situations, the IRS has three years from the date a return is filed or its due date, whichever is later, to examine it. That period may be extended under certain circumstances:

• • • Six years when income is understated by 25% or more
    • No time limit when no return was filed, or fraud is expected

Because of these rules, retaining complete copies of filed tax returns indefinitely is generally recommended as proof of filing. Supporting documentation typically should be kept until the applicable statute of limitations expires and may also be required if a return must be amended.

Which records may generally be discarded now?

Under the three-year standard, most records related to a 2022 return filed by the April 2023 deadline may generally be discarded in late April 2026. Returns filed under extension may remain subject to audit until October 2026. For a more conservative approach, supporting documents may be retained for six years.

Records to Retain

Documentation supporting income, deductions and credits should generally be retained for at least three years. Examples include:

• • • Forms 1099, including 1099-NEC, 1099-MISC, and 1099-G
    • Form 1098, Mortgage Interest Statement
    • Property tax payment records
    • Charitable contribution receipts and written acknowledgments
    • Records related to Section 529 plans and Health Savings Accounts
    • Documentation supporting deductible retirement plan contributions

Records requiring longer retention

Certain records should be kept beyond the standard audit window:

• • • Forms W-2 should be retained until Social Security benefits begin, as they may need to verify earnings history.
    • Investment and real estate records should be kept for the duration of ownership and for at least three years after the sale is reported. Maintaining these records for six years provides additional protection.
    • Retirement account documentation should be retained until all distributions have occurred and the final withdrawal has been reported, and for at least three additional years.
    • Carryover-related records, such as those supporting charitable contributions or casualty losses, should be kept until they no longer affect any tax year, plus seven years.
    • Bad debt and worthless security documentation should be retained for seven years, as refund claims related to these items may be filed within that time frame.

Other Tasks to Address After Tax Day

Maintaining records is only one part of staying tax-ready. Additional steps taken throughout the year can help limit surprises in future filing seasons.

Track potentially deductible expenses

Self-employed individuals who use a personal vehicle for business purposes should maintain a mileage log that records the date, miles traveled, destination and business purpose of each trip. Taxpayers who make charitable contributions should retain receipts or written acknowledgments. Additional substantiation may be required depending on the size and type of donation.

Review tax withholding

Form W-4, Employee’s Withholding Certificate, should be reviewed to confirm withholding amounts remain appropriate. An increase in withholding may be warranted if tax was owed for the year. A reduction may be appropriate after receiving a large refund. Life events such as marriage, divorce, the birth of a child or adoption may also justify changes.

Reevaluate estimated tax payments

Taxpayers who make quarterly estimated payments may benefit from reassessing payment levels. Changes in self-employment income, investment income, Social Security benefits, or other nonwage income can affect required payments, especially in light of recent tax provision changes.

To minimize the risk of an underpayment penalty, payments should generally equal at least:

• • • 100% of the tax shown on the prior year’s return, or
    • 110% when adjusted gross income exceeded $150,000, or $75,000 for married taxpayers filing separately

These thresholds can be satisfied through withholding, estimated payments, or a combination of both.

Receiving a Letter from the IRS

IRS correspondence after a return is filed is not unusual. Some letters reflect math corrections or similar adjustments. When the change is accepted, no response is generally required. If disputed, the IRS should be contacted by the date indicated on the notice.

Other letters propose changes based on information received from third parties, such as employers or financial institutions. These notices require a response and may require supporting documentation.

In some cases, a letter may indicate that a return has been selected for audit. Selection does not necessarily indicate a material error. Many returns are flagged through statistical review processes.

Most audits are correspondence audits, conducted by mail and limited to a small number of issues. According to the IRS, the majority involve returns filed within the past two years.

If an audit notice is received, all instructions should be followed carefully. Extensions may be requested when additional time is needed to gather documentation. Ignoring IRS correspondence can result in disallowed deductions and the issuance of a Notice of Deficiency.

A Proactive Approach

Organizing tax records during the year can simplify future filings and reduce the burden of an audit, while also supporting ongoing tax planning strategies. Periodic reviews of withholding and estimated payments may also help avoid penalties or unexpected balances due.

Boulay’s tax team can help answer questions related to document retention, tax payment adjustments, or IRS correspondence. Get in touch with our team via the button below.