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Resolved to get paperwork organized?

Updated: Jan 26, 2018

Another New Year means another round of New Year’s Resolutions. If you have resolved to eat a healthier diet or to exercise more, we admire your resolve and wish you much success! However, if you have resolved to declutter your home, we have some tips on how long to keep your tax records.

In general, the IRS has three years to audit a tax return, and taxpayers have three years to amend a return. Therefore, the minimum length of time to keep a tax return and its supporting documents is three years. You should keep copies of all income documents (W2s, 1099s, etc.) as well as records substantiating any credits or deductions you claimed (ie. receipts for child care, property tax records, 1098-Ts for college students, receipts for charitable donations and job expenses, etc.). You’ll also want to save 1095s showing you had health insurance and all records of retirement plan contributions.

Keep documents related to the purchase or improvement of your home until you sell it; you’ll need these to establish your basis. Likewise, keep paperwork related to stock and bond purchases and dividend reinvestments because you might need them when you sell. Basis is now reported for many transactions, but if you change brokers or sell older equities not covered by current reporting rules you’ll be glad you kept these documents. Once you report these sales on your tax return, these documents should be kept with that return for at least three years. Please note that if you write off worthless securities or bad debt, you’ll need records for seven years.

You may find it easier to convert your documents to digital files instead of storing paper. In fact, because many receipts fade so quickly it is a good practice to convert paper receipts to digital files. Just make sure the digital version is legible before destroying the original! If you download W2s or 1099s from your employer or financial institution, make sure you save a copy on your computer; you might not have access to the site in the future. The IRS will accept documents that have been digitally saved, though they can require printed copies if you are audited.

The IRS has six years to audit a return if they suspect income has been understated by more than 25%, and there is no limitation if they suspect fraud. Some experts suggest keeping all tax records for six years. If you were not required to file a return, it’s a good idea to keep supporting records (W2s showing you didn’t meet filing thresholds, documentation of non-taxable income, etc.) indefinitely.

Tax returns are used for other financial transactions, so many experts suggest keeping the actual returns indefinitely even if supporting documents are no longer needed. When you dispose of tax related documents, make sure you use a shredder (or take advantage of shredding days hosted by many financial institutions). Finally, the new tax law will make many of the receipts taxpayers currently keep unnecessary for 2018 returns. However, until you are sure of the law’s implications for you, we suggest you continue to keep the records you normally save. It’s much easier to throw away unneeded receipts than it is to recreate necessary documents.

Our blogs offer general information. If you have questions about your specific situation, contact us for personalized advice. Happy New Year, and good luck with the decluttering … and if you find an easy way to lose weight and exercise more, please share it with us!


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