You probably have a file cabinet (or two or three) full of papers you never look at. When it comes time to get rid of some of them, make sure your prior tax returns don't make it into the "shred" pile. What if you made a mistake on a previous return? In that case, you can file an amended U.S. income tax return (Form 1040-X) and possibly receive a larger refund for the amended year. While you'll need to file an amendment within three years of the initial filing date, Green recommends letting your initial return process before filing an amended one, since having both returns open at the same time can cause massive headaches for both you and the IRS.
The IRS has several guidelines to help you know how long to keep your returns. For instance, if you fail to report income greater than 25 percent of the income reported on your return, the agency has six years before the statute of limitations runs out, so you should hold onto the return in question for six years.
Most people don't need to worry about tax fraud investigations and unreported income. Still, definitely get a copy of your return, particularly if you enlist the help of a tax professional. Your previous tax returns will help you to see trends in your income taxes and to prepare your tax returns in the future, making them well worth a little space in your filing cabinet.
The next mistake goes well beyond paperwork and filing folders. Read on to see what we mean.