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It is important to know what tax records you should keep and how long you should keep them. When organizing your files, please remember these general rules concerning your records:
Income Tax Returns and Related Items: Keep all federal and state income tax returns and supporting documents (i.e., items confirming your deductions) for a minimum of three years after the return's filing date. The more prudent route is to keep these returns and documents for six years. Why? The IRS can assess additional taxes within three years of its filing date, but has up to six years in which to make a tax assessment if the IRS determines that a substantial amount of income has been omitted from the return.
Mailing Receipts: If you mail your return by certified mail, or by an express carrier, keep the receipt with your copy of the tax return. Make sure the receipt shows the date the return was mailed. If your return is filed electronically, keep a copy of the electronic filing confirmation with a printed copy of the return. In the event the return is misplaced or lost by the tax authority, this documentation will save you from late filing or payment penalties.
Residential Property Records: Gains of $250,000 ($500,000 on a joint return) are not taxable when you sell your principal residence. However, you still might have to substantiate the amount of the gain. Because of this you need to keep closing statements from all home purchases and sales. In addition, keep records of the amounts that you spent for home improvements. |
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Stock and Bond Records: Keep records of your investment (e.g., stock, mutual funds, and bonds) purchases. Besides providing you with a date for determining the type of gain long term versus short term these records establish your basis in the investment and help to compute the gain/loss when you sell. In addition, keep records that show a return of capital on your investments.
Depreciation Records: For any rental real estate or depreciable business property that you own, keep records of the property's cost, the purchase date, the method used to calculate depreciation, and a schedule of all depreciation claimed on the property in previous years. Maintain these records until you sell or dispose of the property. Once you sell the property, keep these records with the tax return on which you report the sale.
Personal Records: Keep a permanent file of personal records such as divorce agreements, copies of estate and gift tax returns under which you received property, receipts for purchases of art, collectibles, jewelry and the like since they can provide a basis for determining your tax liability when you dispose of the property.
Other Records: There are other situations in which you will benefit from keeping records. For example, if you have made nondeductible contributions to an IRA, maintaining records of these contributions will facilitate proving, and reducing, your tax liability when funds are withdrawn from the IRA.
In closing, the general rule is: When in doubt about a document, keep it. |
