Have you ever wondered which documents to retain and which files to purge? Here are some ideas to help get your records organized. By organizing your records today, you can avoid potential problems later.
Tax Returns: Keep all federal tax returns and supporting documents for as least six years. The Internal Revenue Service generally has 3 years after your return is filed to assess tax. This three-year statute of limitations is extended to six years if amounts in excess of 25% of your reported gross income have been omitted from your return. If you filed a fraudulent tax return, the IRS can audit you at any time.
While it is generally safe to discard tax-supporting documents after six years, it is a good idea to keep your tax returns indefinitely. Copies of past returns can help remind you of carry-over items – such as capital losses and depreciation – for your current return.
Real Estate: All closing statements plus receipts for improvements should be kept for at least four years after the property is sold. Refinance papers should also be retained. Create a file for bills and canceled checks that contain invoices from any improvements you made to your home. When you sell, you can reduce the tax due on your profit by adding the cost of the permanent improvements to your home.
For any rental real estate or depreciable business property you own, keep records of the property’s cost, date acquired and the schedule of depreciation claimed in previous years. This record should be kept for four years after the disposition of the property.
Investment Documents: Generally, investment documents should be kept for at least four years after the asset is sold. This would include record of stock dividends, splits and reinvested dividends. Don’t forget to keep records of your non-deductible IRA deposits, employer-plan stock purchases, rollovers and conversions to Roth IRAS and Keogh plan deposits. These should be kept until four years after the plan assets have been withdrawn.
It is important to retain trade confirmation notices you receive from your stock broker or mutual funds when you buy or sell securities. You will need the information to calculate your gains and losses. When you sell an investment, it is a good idea to attach the buy and sell confirmation to your tax return copy for that year to document the capital gain or loss you reported.
Keep your monthly brokerage or mutual fund statements at least until you receive your annual statement. If that statement summarizes all transactions and related data, for the year, shred your monthly statements.