Now that we have all filed our taxes (or are close to filing, hopefully), what do you do with your records? How long do you keep them? How do you organize them?
Well, here are some tips from the IRS:
Tax records should be kept for a minimum of three years. Be sure to keep a copy of your filed tax returns. In addition, keep the records that prove your income and expenses, including W2s, 1099s, K-1s, receipts for deductions, bank statements, statements for investment accounts, mileage logs, and canceled checks. The three years represents the time period in which the IRS can audit your return and assess additional tax. If you failed to report income, that time period is 6 years, and there is no time limit if the return was fraudulent or if you failed to file (and should have).
- Organize/store the documents in a way that is sensible to you. There is no specific way to keep the records, though logically the information would be broken down by tax year. The important part is that you can find a specific piece of information if the IRS asks for it two or three years from now. Most documents can be kept electronically now, making it easier to organize (but be sure to back up those files).
- Certain documents need to be kept longer. These include records for a home purchase or sale, purchase or sale of stock, and IRA contributions. The records should enable you to determine your basis in the investment so you may determine gain or loss when you sell the property. Real estate used for business or as a rental property also requires more detailed records.
When in doubt, DON'T throw it out. I am by no means telling you to keep every receipt for a tax return you filed 10 years ago, rarely would that be useful, but if it relates to an asset you still have (such as a home or retirement accounts) you likely still need it.