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The Online Advisor

March 2008


What's New in Taxes

Tax recordkeeping: Some tips to make it easier


Are you sometimes overwhelmed and intimidated by the prospect of keeping records for federal tax purposes? Well, you are not alone. Here are some suggestions that should help you determine what to keep and for how long.

Normal statute of limitations. This is three years from the later of the due date or the actual filing date of the return. The statute period can be extended to six years if your income is understated by more than 25%. There is no statute of limitations if fraud is involved. Be safe and maintain the following records for seven years.

* W-2s, 1099s, annual brokerage statements, and other evidence to support taxable income.

* Receipts, cancelled checks, invoices, and other evidence to support tax deductions.

* IRA and other retirement plan contributions.

* Support for all charitable donations of any amount.

Other seven-year records. Some items build a history until they are reflected on your tax return. Once realized on your return, the suggested seven-year holding period applies.

* Net operating loss information. (Generally, net operating losses can be carried back two and forward twenty years.)

* Property purchases and improvements. (Keep for seven years following sale.)

* Investment related information. (Maintain investment purchase and sale information along with any dividends and stock splits.)

* Worthless securities. (Document basis and save evidence supporting the date on which the investment went bad.)

Keep indefinitely. Some records contain important information you may need years later. These records should be kept indefinitely.

* For example, keep copies of your filed returns. The IRS doesn't maintain copies after a period of time. Prior returns might be needed to correct an error in your social security wage history.

* Also keep information on your personal residence. Maintain documents supporting your basis along with improvements. Current tax laws give favorable treatment to your residence, but one Congressional act can change that. It's better to be prepared.

How to organize. Three-ring binders are a good collection device. They're easy to organize and maintain. One can accommodate your old returns and any unrealized long-term tax information. Others can be used to maintain information on filed returns for the recommended seven years. Computerized records with scanned documents are another alternative. However some documents are difficult to scan and readability can be an issue. The three-ring binder might be the better choice.

Good tax documentation starts with a commitment to action. If you need more information to organize your tax recordkeeping, give us a call.






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

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