Written by Jerry Ricciardo, CFP ®
Now that the tax-filing season is over, it may be a good time to clean up your records.
Below are some guidelines for both paper and electronic files:
- Tax returns – with proof of filing & payment. May be used for mortgage and disability applications and checking salary reported on your estimated Social Security statement.
- IRS Form 8606 – for reporting non-deductible IRA contributions to avoid being taxed again when the money is withdrawn in retirement.
- Your home’s purchase price and capital improvements so you can accurately report the gain when the home is sold.
- Taxable investment accounts – record of purchase price/date and shares and dividend payments to accurately report your cost basis.
Three or Seven Years:
The IRS normally has up to three years after the due date to audit your tax return. However, they may look back six years after the due date if they suspect you substantially underreported income or committed fraud.
If you want to play it safe, keep supporting documentation for seven years (2012 return until 2019) before shredding. Supporting documentation would include W-2, 1099s and cancelled checks or credit card statements that substantiate deductions.
- Keep paycheck stubs until you receive your W-2 to check accuracy.
- Monthly brokerage statements until you get your year-end statement.
- Monthly bank and credit card statements to identify tax deductions and then only keep those you need to support tax deductions.
REMEMBER – To avoid ID theft, shred everything you are tossing!