Dealing with the death of a loved one is never easy. You want to make sure you’re taking all the right steps to settle your loved one’s estate correctly.
A mistake could lead to your relative becoming a victim of fraud or identity theft, even after death. They could also lead to a tax audit. Unfortunately, these are things we need to think about, but it’s better to be safe than sorry.
Jump ahead to these sections:
- How to Access Tax Records After Death
- Keeping Personal Income Tax Records
- Holding On to Business Tax Records
- How to Store Records Safely
In this guide, we’ll answer these questions and more. Before you shred those documents, make sure you don’t need them anymore.
Post-planning tip: If you are the executor for a deceased loved one, handling their unfinished business can be overwhelming without a way to organize your process. We have a post-loss checklist that will help you ensure that your loved one's family, estate, and other affairs are taken care of.
How to Access Tax Records After Death
First, how do you gain access to your loved one’s accounts and financial records? There are a few different ways. The first is if your loved one lets you know where these documents were stored. They might be in a filing cabinet or a special folder. You might also have access to them digitally.
Financial institutions are often very strict about who they allow to access their customers’ data, and for good reason. Typically, only the executor or administrator of the estate will be able to access financial and tax information, and only after the executor or administrator has been officially appointed by the probate court.
Most financial institutions will require a certified copy of the appointment and an original death certificate before allowing you access to any of the deceased’s information.
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Keeping Personal Income Tax Records
How long should you hold onto your loved one’s personal income tax records? Not only could these be dangerous if they get into the wrong hands, but you might find yourself needing them in the case of an audit.
Make sure you know the following before you dispose of those individual tax records.
Federal tax records
It’s essential to hold onto federal tax returns in case of fraud. First, many scammers steal the identities of the recently deceased in order to open fraudulent credit cards and lines of credit. Having your loved one’s federal tax records might be evidence in such a case.
Another reason to hold onto tax records is in the case of an IRS audit. The statute of limitations for an audit of an individual tax return is three years. However, if there’s a serious fraud offense, this could be a longer period of time.
If you doubt your loved one committed any kind of fraud, you still should hold onto these records for more than three years. The best advice is to keep them for seven years, along with any other tax documents. Even then, it’s still a good idea to keep an electronic copy of all records just in case.
What documents should you keep?
- W-2 Form reporting income
- 1099s Forms showing capital gains, income, and investments
- Form 1098 showing mortgage interest
- Charitable contribution receipts
- Health and college savings plans
- Retirement savings plan records
While it’s unlikely you’ll need these documents again, you might need them for things like student loan debt after death or probate court. In a perfect world, all estates would settle easily and without conflict. In reality, things are rarely black and white. To be safe, store documents for up to 7 years.
State and city tax records
You should follow the same rules for state and city tax records as well. While not all states and cities require tax filings, those that do often follow the same auditing rules as the federal government. You should hold onto your loved one’s records for at least three years.
What exactly should you keep?
- Records of assets
- Property tax bills
- Property documents
- Estate documents
When in doubt, it’s a good idea to hold onto it. Thanks to new digital storage options, it’s no longer a challenge to keep your documents safe and secure.
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Holding On to Business Tax Records
Business records are just as important as individual records. If your loved one owned his or her own business, whether by themselves or with a partner, these documents need to be stored safely.
Federal tax records
Business taxes have a much longer statute of limitations when it comes to an audit from the IRS. Because of this, you’ll need to stay on top of these documents for much longer. Hold onto any federal tax records for up to 7 years to make sure they’re secure.
What business records should you keep?
- Bank statements
- Investment statements
- Canceled checks
- Business tax returns
- Payroll documents
- Self-employed 1099s forms
- Loan documents
For anything that’s still active, such as contracts or utility bills, take care of these as soon as possible after the death. Otherwise, keep federal tax documents and financial records for seven years. Again, feel free to use digital recordkeeping.
State and city tax records
Finally, businesses are also subject to state and local taxes. State governments might audit these businesses after death as well, so keeping track of records is key just in case. You’ll want to keep all of the records listed above, as well as any local property records. This includes property tax forms and documents. In general, it’s always better to be safe than sorry when it comes to recordkeeping.
In addition, if your loved one was in business with another person, these documents are a useful tool for them moving forward. They might need these documents or records to gain full control of the business.
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How to Store Records Safely
Now that you know how long you should hold onto relevant documents, how do you do so securely? If you’re not careful, these records could get into the wrong hands and create a fraud situation. Try these tips when handling any critical documents, including your own:
- Use specific filing folders or envelopes specifically for these tax documents
- Label everything with your loved one’s name
- Separate all tax documents by year
- Store these documents in a safe, preferably fireproof
- Check each year to see what is no longer needed
- Use a secure cloud storage service to save digital records
If you choose to use a digital storage option, pay close attention to security. Cloud safety has come a long way in recent years, but no digital storage solution is perfect. Always read the user agreement on these systems, and don’t be afraid to upgrade for a more secure solution. Pay close attention to user permissions and who you share these documents with. Finally, don’t forget to back up your storage regularly.
Finally, when disposing of your physical documents, do so safely. Always shred important papers to keep them from getting in the wrong hands, like an identity thief or another type of criminal.
Protect Tax Records After Death
There are a lot of things people worry about after the death of a loved one. Tax documents usually aren’t high on that list. However, protecting your loved one’s tax records and financial documents is a key part of finalizing one’s estate. If this burden falls to you, follow the guide above to ensure you’re taking proper care of these documents.
While you don’t need to hold onto tax records forever, it’s better to err on the side of caution. The IRS or local tax office could also decide to audit your loved one. While unlikely, prepare yourself for anything.
Keeping these documents for up to seven years is a smart way to protect against identity theft and auditing. Are you prepared?
Disclaimer: The information posted on this site is provided solely for informational and educational purposes and is not legal advice or tax advice. Contact an appropriate professional licensed in your jurisdiction for advice specific to your legal or tax situation.