Monday, August 18, 2014


For years now, when asked by clients or readers, “How long should I keep my tax records?” I have recommended that you keep the copy of your actual Form 1040 (or 1040A) with all attached forms and schedules forever. 
My reasons - your 1040s provide a permanent record of your financial history, and you never know when the information on a prior year’s tax return will come in handy for a variety of tax or financial related reasons, or just to satisfy personal curiosity.

I now add to this advice also keep copies of all your W-2s forever.

Just the other day a long-time client asked me if I had copies of his wife’s 1998 and 1999 Form W-2s.  He had not saved them, and needed the forms for an issue with his wife’s employer, who had lost their records for past years in a flood and did not have back-up copies stored elsewhere.  While I have copies of his 1040s back to the mid-70s, I did not have a copy of the needed W-2s.  Back then I was not keeping copies of W-2s and other information returns. 

FYI, I did start making copies of at least W-2s and 1099-Rs to attach to my copy of client returns in the early 2000’s.

During the tax filing season I came across a situation where a client, a retired municipal police officer, took a distribution from his deferred compensation account.  The distribution was fully taxable on the federal return, as employee contributions were “pre-tax”.  But for NJ state income tax purposes employee contributions were not “pre-tax”, so he had a “basis” in the account and at least some of the distribution would be considered a tax-free return of contributions.

I told the client to call the account trustee and ask for the total amount of employee contributions to the plan over the term of his employment.  However, because the trustee had changed several times over the years, information was only available for contributions made since 2000.  The client, who first came to me in the early 2000’s, had joined the police force in the 1980s. 

The trustee told my client to get the information for the years before 2000 from his W-2s.  Client contributions to retirement plans are usually reported in Box 12 or Box 14 of Form W-2.  Of course the client did not have copies of all his W-2s going back that far, nor had he kept copies of all of the year-end account statements.

So you see, you never know when you will need the information reported on a Form W-2. 
I provided the client looking for his wife's W-2s with the information I found on the IRS website -
"The IRS does not retain actual copies of Form W-2 except as an attachment to your tax return, for prior years. However, the IRS maintains (and will provide free of charge) Form W-2 information for any purpose for the past ten processing years. Use Form 4506-T (PDF), Request for Transcript of Tax Return, to request Form W-2 information. The only way to get an actual copy of your Form W-2 from the IRS is to order a copy of the entire return on Form 4506 (PDF), Request for Copy of Tax Return, and pay a fee of $50.00 for each return requested."
So the bottom line - keep copies of all your W-2s forever.


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