A question we get several times through the year is.. What paperwork should I keep and what can I get rid of?
So, I did some checking and thought I would share what I found.
- Tax Returns – You should keep tax returns and supporting documents for at least 3 years from the due date of the return. However, the IRS can go back 6 years if your return omits more than 25% of income and an unlimited time period if they can prove fraud.
- Real Estate Records – Save your settlement sheet and all receipts or invoices for improvements made to the property for as long as you own it. You will need to calculate the tax basis when you sell the property. It is a good idea to retain those records for at least 3 years after you dispose of the property.
- Securities – Keep purchase documents for taxable mutual funds, stocks and other securities as you need to include the purchase date and cost in your return the year you sell them. You should also maintain records that show stock splits, dividend revenue trusts and non-taxable distribution. You do not need to keep monthly brokerage statements if they match up with your year-end statements and 1099’s you receive
- Inheritances and Gifts – If you inherit property or receive property as a gift, you should keep all documentation until 3 years after you sell the asset.
- IRA’s and 401k’s – It is advisable to save records pertaining to your retirement accounts for at least 3 years after the accounts are depleted. Retain from 8606 and your 1040’s for each year you made contributions. You will need these records to show that you already paid taxes and are not taxed again when you withdrawal the funds.
I guess a good rule of thumb is to keep documents as long as you think you might need them. Everyone’s circumstances are different.