Why should you keep your tax documents? Here are 4 reasons you may not have considered.

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You have likely been told by accountants and tax professionals in the past that you need to keep copies of your tax returns for up to 7 years depending on your filing situation and certain deductions you claim. But you may have let your record keeping slip over the years, or simply not seen the importance of keeping good records.

To reinforce the importance of keeping your previous years’ returns and documents handy we’ve made a list of several important transactions that will require you to have tax information on hand.

1. Buying a Home-

If you have purchased a home in the past then you are probably well versed in the documents that you are required to provide for the mortgage process. But if you are new to the home buying game you may be surprised to find that in addition to paystubs and prior years W-2’s you also may be asked to provide your full Tax Return. Some mortgage companies today also require a Form 4506-T which allows them to access your official tax transcripts which the IRS keeps. These transcripts allow the mortgage company to confirm that the information you are reporting to them is the same as what was reported to the IRS.

2. Auto Loans-

While not everyone will be asked to provide tax returns when applying for an Auto Loan if you are self-employed in order to verify your income you may be asked to provide anywhere from 2-5 years of tax returns. To ensure a smooth buying process go prepared with tax returns, as well as W-2’s and pay stubs, you don’t have to hand over everything you brought, but at least you won’t be scrambling to get documents together in a rush.

3. Financial Aid for Higher Education-

If you or your child is applying for financial aid for College or Technical School you will need to fill out a FAFSA form. The form can be filled out online and for those who E-filed their tax return, an option is available to directly imported into the FAFSA system. However, you will still need a copy of your most recent tax return to verify certain numbers before the system allows you to import. Some of the things you will need to verify are Filing Status (Single, Married, Married Filing Separately, etc.) and Adjusted Gross Income (AGI, found on line 37 on 2016 Form 1040).

4. Healthcare.gov-

While the Health Insurance Marketplace won’t require your full Tax Return, in order to determine your eligibility for subsidies and assistance programs, the application will ask for your Adjusted Gross Income (found on line 37 of 2016 Form 1040). In addition to you and your spouses AGI the application will also ask for you to include the AGI of any other members of your household who work (including your dependents). It is important to report these numbers as accurately as possible because you will be required to pay back the difference in any subsidies or assistance that you used if your actual income earned in the year is greater than the amount you reported on your application.

 

 

Having both printed and digital copies of your last several tax returns will make these transactions simpler, quicker, and less stressful. Be sure to store your tax documents securely in both digital and print forms so you don’t risk identity theft.

Have questions about your taxes? Now is the best time to ask! Give us a call today to address your questions before the rush of tax season is in full swing.

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