Monday, April 30, 2012

HOW LONG SHOULD I KEEP TAX RECORDS?

Now that you have completed your tax return – how long should you keep the return, and the records and documentation that support items claimed on the return?
(1)  Keep the paper copy of your tax returns (Form 1040 or 1040A plus all supporting Schedules and Forms) forever.  This provides a permanent record of your financial history.  You never know when the information on a prior year’s tax return will come in handy for a variety of tax or financial related reasons, or just to satisfy personal curiosity.
 
(2)  Keep all back-up documentation that supports an item reported or deducted on your tax return for four (4) full years.  This includes all applicable bank statements and cancelled checks as well as W-2s, 1099s, 1098s, and appropriate receipts and bills.  You can toss all such information for your 2011 tax return in December of 2015.
 
The IRS, and the appropriate state tax authorities, has three (3) years from the due date (or filing date if you had any extensions) of a tax return to audit and revise that return (except in the case of tax fraud – then the IRS can go back forever).  If you filed your 2011 Form 1040 by the initial April 15, 2012 due date, “Uncle Sam” had until April 17, 2015 to audit it. 
 
(3)  Keep all confirms for the purchase of stock, bonds and mutual funds, and other appropriate back-up (such as notices of splits and records of any dividend reinvestments) for as long as you hold the investment plus four (4) additional years.  Keep the confirmation slip or other documentation for the sale or disposition of the investment for four (4) years after the sale or disposition. 
 
Similarly, keep all Closing or Settlement Statements for the purchase and refinancing of real estate, and documentation of any capital improvements, for as long as you own the property plus four (4) additional years.  Keep the Closing or Settlement Statement or other documentation for the sale or disposition of the property for four (4) years after the sale or disposition.
 
And if you have invested in a limited partnership or “sub-chapter S” corporation, or are a partner in a business organized as a partnership, a “sub-chapter S” corporation or an LLC or LLP you should keep the annual Form K-1 you receive from the investment or business for as long as you own an interest in the entity plus four (4) additional years, and keep any paperwork related to the sale or disposition of your interest for four (4) years after the sale or disposition.
 
TTFN

5 comments:

Russell Fox said...

Some states have four years to conduct an audit rather than the three years allowed for the IRS. Thus, I recommend that clients keep their backup documentation for four years from the due date of the return or date of filing, whichever is later.

-- Russ Fox

Robert D Flach said...

RF-

Good suggestion.

Thanks!

RF

Tax Relief said...

I agree with Russel! It is important to take the extra step and ensure avoidance with the IRS by keeping your tax records for 4 years.

Joseph Kottow said...

Almost all credit card, utility companies, phone, cable, etc. will now deliver bills and accept payments online. This is so much more convenient than writing checks. The added bonus is these companies keep years of statements for you, easily accessible online. This really cuts down on the volume of mail and "saves trees" in the process! Less paper=less clutter and storage space required.

Marvino Sherman said...

Well i have tax records from 1994 and like most have said they don’t take up to much space if you keep them in order. I also like to keep most of my records for bank and credit cards and bill statements for 7 years. Not sure if i need to do this what do you think.