Once you’ve filed your income tax return, 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 a minimum. If you can, consider keeping these items 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 most 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 for some reason says you didn’t file.
For additional guidance on record retention, please contact the tax professionals at Gilliam Bell Moser LLP.