There tends to be a huge sigh of relief when tax season is finally behind us. Goodbye 1040s and W-2s, hello sunny skies and warmer weather. Spring is a time of transition where many people practice the tradition of spring cleaning (of course, some carry out this practice better than others). Spring cleaning allows us to clean and organize our garages, purge our closets and filing cabinets, and ready us for the coming summer months. In the process we have to decide what to keep and what to toss. With this, comes a common question: what do I do with those pesky old tax returns? Keep them or shred them? How long? Three, five, ten years?

Our recommendation is to keep returns for all years – as far back as possible. While you are only legally obligated to keep all tax related information for three years (IRS recommends seven years), there may be situations that require you to go back many years to defend yourself in the event of an IRS audit, or to verify other tax related information, i.e. cross-checking your earnings against the Social Security Administration’s records.

The IRS does keep copies of all returns for at least seven years. After seven years, you may be able to obtain a transcript, or summary of the line items in your return, but not the actual return or any of the attachments, like W-2s and 1099s (which are needed to verify earned income).

Why on earth would you want to keep tax returns longer than you are required to? Consider a recent case where a man was told by the Social Security Administration (SSA) that he did not have enough service credits to qualify for benefits. While you think this may never happen to you, this was someone who has worked since he was in his teens, so he surely had enough credits. While there was a period of time he did not pay into the Social Security system because he was working as a teacher, he definitely worked enough years prior to teaching to qualify for social security benefits. However, according to the SSA this was not the case. They claimed he was 8 credits short.

Unfortunately for him, he threw away his returns after 10 years. Certainly the IRS has records going back to when he first started filing tax returns, right? Nope. They did not even have the transcripts described above. It was obviously a clerical error on the SSA’s part, but without the old supporting documents he was unable to successfully defend himself. This story does not close with a happy ending; the man ended up delaying retirement for TWO years before qualifying for social security benefits. In order to avoid situations like this, while rare, it’s best to hold on to those old tax returns.

If you can’t stand clutter, and consider these old tax documents (beyond the statute enforced by the IRS) as clutter, it is recommended that you first double-check your records and make sure the SSA has properly credited your earnings. If they’re wrong, you’ll need your old W-2’s or copies of your Schedule C (if self-employed) to prove the right amount. Don’t dump those records until after you have validated your earnings.

Prior to April 2011, each year the Social Security Administration mailed social security statements to every social security beneficiary a few months before their birthday. These statements provide the SSA record of your earnings history for the years you paid into the system, as well as your benefit information. So while these statements are no longer mailed (except for those who are age 60 or older and are not yet receiving benefits), they can now be obtained online at ssa.gov/mystatement. After answering a few security questions to verify identity, you have the ability to print out a current social security statement. It is important that you take the time to review your earnings history and make sure everything adds up. It is much easier to fix mistakes now than it will be at the time you are ready to claim benefits.
It is important to understand that thousands of mistakes are made at the Social Security Administration and the IRS offices, a like. Unfortunately, many of them go unnoticed. Please do not make the mistake of discarding documents until they can no longer affect your taxes or social security benefits.

Special service for DMG Clients: To make your life easy and clutter free, we can store your old tax records in our electronic document vault. You can have 24/7 secure access to your files via the web, free of charge. Please contact us if you’re interested in learning more about this service, or have further questions about taxes or Social Security. We’re here to help!

 

“One-size-fits-all” won’t fit you here! The Del Monte Group team understands that everyone’s financial goals are unique. That’s why we always provide customized advice. No matter where you are in life, you can depend on our proven expertise to provide financial planning support for long-term success. Ready to get started? Schedule a meeting with Richard or Angela in our Alamo, CA based office today or we can meet via Zoom! >> You can select a date and time that works for you via our calendar, call us at 925.736.6410, or send an email to Info@APlaceOfPossibility.com. We can’t wait to help you!

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