May 2009

What's New in Taxes

How long should you keep tax records?

5/1/2009 -

After filing your 2008 tax return, you may be wondering how long to keep your tax records. Unless fraud, evasion, or a substantial understatement of income is involved, the IRS generally has only three years in which to question your return. If the IRS asks, you must be able to prove the validity of your tax return, which includes providing the underlying supporting data. How long you keep your paperwork depends directly on the statute of limitations, but here are some guidelines.

* Your copy of the tax return. Consider keeping it forever since you never know when this document will come in handy. Remember that in many cases, the IRS destroys original returns after four or five years. It's always best to have your copy to fall back on.

* Cancelled checks, bank/investment statements, and receipts. Keep them for seven years. Because of various combinations of the statute of limitations and technical provisions in the law, keeping them for seven years, rather than just for three years, is recommended.

* Stock or bond trade confirmation statements. Keep for seven years after the sale of the stock. For example, say that you bought 200 shares of stock in 1986 and sold them in 2008. You'll want to hold on to both the buy and sell confirmation statements until at least April 2015.

* Escrow closing documents and improvements to property. Keep for seven years after the sale of the property. Keep these documents to prove your cost of the property when it is finally sold. This is true for rental property, investment property, and even your personal residence. You might think that keeping cost basis records on your personal residence is no longer required because of the gain exclusion rules on the sale of a principal residence. That's not entirely true, since these laws could change at any time, or your gain could exceed the gain exclusion limits.

This listing is not all-inclusive, and you might have special circumstances. If you need any help with your recordkeeping requirements, give us a call.

 

For details or for assistance with your tax planning, give our office a call.