THE BIGGEST TAX MISTAKE
The biggest income tax mistake has nothing to do with underreported income or missed deductions. It can happen whether you prepare your return yourself or have someone do it for you. The problem arises with e-filed and paper returns. On the surface, the mistake may seem trivial but it has been responsible for increased taxes, major inconveniences and delayed dreams. The biggest income tax mistake is not keeping a copy of the return and supporting schedules and documents.
It would seem a matter of common sense to safeguard a copy of the filed return. The IRS recommends keeping return and documentation used to prepare the return for 3 years from the due date of the return or the date it was actually filed if later. I tell my clients 5 years. But do you know where your 2006 return is? If you needed a copy of that return today, could you find it?
What happens to the return?
· The taxpayer doesn't make a copy. Or if the return is filed online doesn't print a copy for their record.
· She saves a computer copy but can't find it due to a computer problem. Or they can't remember the file name or where they put it.
· A copy of the return is saved but not the W-2s and supporting documents.
· They move and can't find the return. Or it gets thrown out by mistake.
· They paid someone to do the return but was never given a copy of the return.
· They assumed the preparer would always be there if they needed a copy and they go out of business, move or suffer a data loss.
What is the big deal? Why do I consider this the biggest income tax mistake? First, because not having a copy of the return can hurt you if there ever is a question about the return. It is up to you to prove that income was reported or that you are entitled to the deductions. And a copy of the original return is the first step. If the original return ever needs amended, the changes are based on what was originally reported. Even if there is never a tax problem, your tax return is your basic financial statement. Buying a house, the bank will want a copy of your tax returns for several years. College and University financial aid is based on information from your tax return.
Keeping a copy of your tax return isn't hard. It just requires you to work out a system and then follow through. You can get a transcript of the return as filed. Use Form 4506-T to file a request. It is free and will take about 2 weeks. If you need a real copy of the original return, file form 4506. It cost $39 and could take as long as 60 days. It is just easier to keep a copy of your tax return yourself.