What to Keep, What to Throw?

After the tax deadline has come and gone, you may find yourself neck deep in paperwork. It requires quite a few documents to file, but what do you need to hold on to? If you’re faced with an audit, you’ll need important documents, but what does the IRS consider important? Broussard Poché, LLP can help make the task a little less terrifying.

In general, you must keep records that support items shown on your individual tax return until the statute of limitations runs out, that’s usually three years. So if you have records older than 2012, you can now shred most of those, but there are a few things you may want to hold onto.   There are exceptions. For example:

  • If the IRS has reason to believe your income was understated by 25 percent or more, the statute of limitations for an audit increases to six years.
  • If there is suspicion of fraud or you don’t file a tax return at all, there is no time limit for the IRS.

It’s also important to know, the IRS does not require you to keep records in any particular way. But here are some basic guidelines to follow for individuals:

Completed tax returns. We recommend that you hold onto copies of your finished tax returns forever. It sounds unusual, but it allows you to prove to the IRS that you actually filed. Even if you don’t keep the returns indefinitely, you should hang onto them for at least six years after they are due.

Backup records. Items, such as receipts, expense logs, bank notices and sales records, should generally be kept for at least three years.

Real estate records. As long as you own the property, you’ll want to hold on to those records. If you sell the property, you should keep the records an additional three years.

Securities. As long as you have these investments, you’ll want to keep these records plus the statute of limitations on the relevant tax returns. For stocks and bonds, you must maintain detailed records of purchases and sales. These records should include dates, quantities, prices, dividend reinvestment, and investment expenses, such as broker fees.

Individual Retirement Accounts (IRAs). The IRS requires you to keep copies of Forms 8606, 5498 and 1099-R until all the money is withdrawn from your IRA accounts. With the introduction of Roth IRAs, it’s more important than ever to hold onto all IRA records pertaining to contributions and withdrawals.
In a previous blog post, we highlighted a detailed list of items you should hold onto, you can see that list here. If you find your paperwork is out of control, contact your tax professional at Broussard Poché, LLP and we can help you clear your files.