Your last tax return was months ago and you don’t have to worry about filing again until next spring so you may be tempted to clean house and get rid of some of your old records that are taking up space. The guidelines that follow will help you decide which items can go and which should stay in your files.*.
Income and Expenses
Keep for at least three years after the date you file your return (or its due date, if later) the records proving your income and expenses, such as:
- Form(s) W-2
- Form(s) 1099
- Form(s) K-1
- Bank and brokerage statements
- Canceled checks or other proof of payment
Three years is generally considered a minimum. If you can, consider keeping these items for six years, the IRS’s time limit for auditing a return when income is substantially understated and no fraud exists.
You’ll need your investment records to figure your gains and losses when you sell the investments. After you’ve sold an investment, continue to retain your records for as long as you keep the other items supporting the tax return on which you report the sale (three or six years). Investment records include statements showing when you purchased the investment, the purchase price, brokerage commissions, and any reinvested dividends.
Residence Purchases and Improvements
Hold on to closing statements and other paperwork related to the purchase of your principal residence for use when you eventually sell the home. Put records of any home improvements you’ve made in the file, too. While many homeowners won’t have a taxable gain when they sell their homes because of the $250,000 ($500,000 for married couples) exemption, special circumstances, such as renting out your home or having a home office, could result in a taxable profit.
Your Tax Returns
Maintain one or more permanent files with important personal documents, including your tax returns. If you don’t file a return, the IRS can assess tax at any time. You’ll need a copy of your return in case the IRS has no record of your filing.
*This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax situation is different. Contact your tax professional to discuss your personal situation.
Our Largo, FL CPA Firm can help. We offer individual and business tax preparation and tax planning services. We can also assist with IRS tax problems if they arise. Give us a call today at 727-544-1120!