How Long Do I Have to Keep Those Papers?
You’re swimming in paper. This article helps you know what to keep and what to toss.
The ground rules: You should keep all your tax records for at least the three years the IRS has to audit you and assess any additional taxes. The IRS has six years if you understated your gross income by more than 25%. There is no statute of limitations if you failed to file a return or filed fraudulent returns.
Tax returns and supporting documents: At the minimum, keep them three years. I like keeping the tax returns but not the supporting documents forever for the very rare times a governmental agency sends a notice out saying you haven’t filed a tax return you in fact filed years ago. If you have foreign accounts, keep your returns and FBAR forms for seven years.
Yearly income: Keep your last pay stub to see if your W-2 accurately reflects your income. Keep a record of every check you receive, especially the unusual ones that you’re more likely to forget. Record what comes in be it free lance or wage income, dividends and interest, rents, alimony, social security, unemployment or gifts and check it against your W-2’s, 1099’s and K-1’s.
Yearly expenses: You need to know how much you spent for deductible items like charitable contributions, mortgage interest, real estate taxes, medical expenses, alimony, child care expenses, and business/ job expenses. Keep sales slips, invoices, receipts, and canceled checks or other proof of payment. The more records you keep, the more likely you’ll be able to be accurate on your tax returns.
For depreciable assets, keep records for the length of depreciation plus three years. For cars and computers that’s five years for the depreciation period plus three
more or eight years. For other equipment, office furniture and library expenses that seven years plus three or ten. For buildings, that’s 40 years plus three or 43. If you sell any of these assets before the end of the depreciation period, keep your records for at least three years after the completion of the sale.
Investments: Whether it’s real estate or stocks and bonds, you should keep all the information about how much the property cost you and when you bought it and any additional purchases and dates. This means keeping all those stock purchase slips.
If you own mutual funds and reinvest dividends and capital gains, keep the original purchase slips plus each year’s 1099’s in a mutual fund file so you can figure out the proper costs when you go to sell them. Brokerage and bank statements are invaluable when you go back to find something out.
If you own real property, keep your closing papers and proofs of payment as well as records of any improvements for as long as you own the property. If you sold a home before 1998, keep form 2119 until you’ve sold the replacement home.
Tip: It is useful to keep these copies in separate files labeled “home” or “mutual funds” rather than in a yearly overall tax file. Keep all buy and sell records for at least three years after the transactions are completed.
Permanent files: Birth certificates, social security numbers, educational degrees, marriage licenses, divorce agreements, professional licenses, passports, wills, and copies of estate and gift tax returns should be kept permanently in a separate file. Sooner or later, you will need access to one of these documents. It makes life easier to know where it is.Source: www.freelancetaxation.com