You’ve just finished filing this year’s tax
return. With a sense of relief, you set aside
a copy of your return and your supporting documents.
But what do you do with them then? Of course,
the first step is to keep your tax records in
a safe, convenient place. You may need to refer
to them for any number of reasons—for example,
for future filings or when you are seeking credit.
Then, too, you’ll need easy access if you face
an audit from the IRS. The following suggestions
will help you compile the best and most complete
records.
What to keep
First, there are the basic records that you
will want to have on hand. Records of your income:
Form(s) W-2, Form(s) 1099 and bank statements.
Expense records should include sales slips,
invoices, receipts, cancelled checks or other
proofs of payment.
Among the investment records that you’ll want
to keep are the following: brokerage statements,
mutual fund statements, Form(s) 1099 and Form(s)
2439 (Notice to Shareholder of Undistributed
Capital Gains). Keep year-end account summaries
and deposit receipts for any IRA or Keogh contributions.
Your records should enable you to determine
your basis in an investment and whether you
have a gain or loss. Records should show the
purchase price, sales price and commissions
paid. They also may show any reinvested dividends,
stock splits and dividends, load charges and
original-issue discounts. If you have real estate
investments, you’ll need to keep copies of all
the regular and extraordinary expenses associated
with the properties.
How long to keep it
According to the Tax Code, you are required
to keep copies of your tax return and all support
as long as they may be needed for the administration
of any provision in the law. Typically, that
means for as long as the IRS has the right to
assess additional tax on your return, or you
have the right to amend your return to claim
a credit or refund (“the period of limitations”).
There are several periods of limitations. One
is a three-year period that applies generally.
Another is a six-year period that applies when
you don’t report income that you should and
that income is more than 25% of the gross income
shown on your return. If the return is fraudulent,
or you fail to file a required return, there
is no limit as to when the IRS can require you
to provide it with information.
Recordkeeping for homeowners
Determining your basis (cost) in your home will
be extremely important in order to figure the
gain or loss when you sell your home (or to
calculate depreciation if you use part of your
home for business purposes). Therefore, your
records should enable you to determine your
basis as well as any adjustments to your basis.
Your records should show the original purchase
price of your home and settlement or closing
costs. They also may show any casualty losses
incurred, insurance reimbursements for casualty
losses and postponed gain from the sale of a
previously owned home.
Be sure to keep a file of bills on what improvements
you’ve made to your home each year. Generally,
the costs of improvements—changes that add value
to your home, prolong its life or adapt it to
new uses—may be added to the basis in your home.
Repairs and general fix-up costs may not.
The opinions voiced in this material are for
general information only and are not intended
to provide specific advice or recommendations
for any individual. To determine which investment(s)
may be appropriate for you, consult your financial
advisor prior to investing.
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