The Duty of Every American: Archiving Tax Records
LFG Marketing | July 2019
Once a year, every American household is required to prepare a detailed financial report, documenting income and expenses, and declaring their profit or loss. This report is an income tax return.
The Transition to Professional Assistance, Tax Software, and E-Filing
Theoretically, you can prepare any tax return with an IRS instruction booklet, a pencil and a calculator. But if the people who enact tax rules can’t keep them without computer assistance, there’s no way you should try to.
As a 2020 presidential candidate, Vermont senator Bernie Sanders recently released for public scrutiny his tax returns from the previous 10 years. The oldest return, from 2009, was apparently self-prepared, and in reviewing it, professional tax preparers found several errors by the 77-year-old senator. Three mistakes reduced the senator’s reported taxes, while one unnecessarily increased them. Had the return been prepared properly, Sanders would have owed $4,479 more than he paid.
No one has implied that Mr. Sanders cheated on his taxes; a spokesperson for Sanders said, “any inadvertent errors were…promptly addressed.” And the Wall Street Journal noted that Sanders’s 2010 return “was created by a paid tax preparer using software.”
Bottom line: unless your financial life consists of nothing more than a single W-2, you can’t complete your returns without professional assistance or a tax-preparation program. When it comes to taxes, you simply can’t remain analog in a digital world.
Most Americans already know this. The IRS reports that 56% of filers use a paid preparer, and 36% use tax-return software. And for the 2018 tax year, the IRS anticipated that 90% of all taxpayers would file their returns electronically.
Return Is Done? Your Record-Keeping Has Just Begun
It’s not enough to use professional help and/or technology to prepare the return. IRS rules include the archiving of supporting documentation for periods ranging from one year to a lifetime. And while most Americans have made the transition to electronic tax return preparation, a much smaller number have effectively organized their supporting documentation, in either hard-copy or electronic form.
Yet at some point in the future, you may need to retrieve this information, perhaps to respond to an audit request, or more likely, as a reference point for another taxable event (such as
as determining your cost basis in the sale of a home or an investment).
Today, your supporting data may exist in an electronic or paper format, on a disk or in a folder, stored online or stuffed in a file cabinet. How can individual taxpayers effectively assemble these disparate pieces? The same way they prepare their returns: with professional assistance, software, and electronic filing.
Digital Vault + Professional Help = You Can Do This!
Unless you have a natural inclination toward organizing, often the best place to start your archiving is with a financial professional. A financial professional knows what to save, and most likely has a system, including software, in which to categorize and store it. Many financial professionals – such as CPAs, investment advisors, insurance agents, and brokers – offer their clients a digital vault for the storage of important documents, often on a complimentary basis. (As an example, consider The Living Balance Sheet®* from Authorized Users affiliated with Guardian Life Insurance Company.)
Using a digital vault under the guidance of a financial professional gives you the tools and assistance to make organization doable instead of so overwhelming that you never get started. You may be able to delegate the scanning of paper documents into digital files, and authorizations for real-time updates to existing accounts can make maintenance almost automatic.
Lifetime Financial Growth, LLC is an Agency of The Guardian Life Insurance Company of America® (Guardian), New York, NY. Securities products and advisory services offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC. OSJ: 244 Blvd of the Allies, Pittsburgh, PA 15222 (412) 391-6700. PAS is an indirect, wholly-owned subsidiary of Guardian. This firm is not an affiliate or subsidiary of PAS. 2019-82022 EXP 06/2021