How long must I keep tax records for my individual tax return?

The answer depends on a number of factors.

First, it depends on the accuracy of your return.  Generally, the IRS statute of limitations expires three years after filing, so you must retain all documents used to file the return for at least that long.  However, if income on a return is understated by more than 25%, the IRS has six years to audit the return.  There is no statute of limitation when fraud or failure to file is involved.  To be safe, keep all documents used to prepare your return for at least seven years and save copies of your completed returns forever.

Secondly, it depends on the type of record.  Records of capital asset purchases, such as stocks, should be kept for seven years after the asset is sold to prove the cost basis.  Worthless securities and bad debts can be written off seven years after the fact, so hold on to related documents for at least that long.  Homeowners should keep original purchase documents, plus major improvement receipts, for seven years after they sell their home.

As the beginning of another year is here and you begin to organize your files for 2005, keep in mind the following items:

·         Receipts provided by charities for gifts of $250 or more and non-cash charitable contributions.

·         Brokerage statements showing trade dates and amounts.  Also, make sure you (or the brokerage company) have the basis for the stock sold.

·         Closing statements for the purchase or sale of a residence or rental property.

·         Moving and job hunting receipts.

·         IRA contribution information.

Whether you use a shoebox or a spreadsheet, good recordkeeping pays off in the long run.  If ever in doubt about what to keep, give me a call.  A little organizing now can save big headaches later.

The information presented in the Tax Newsletter is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly, cannot be regarded as legal or tax advice. Please contact your tax advisor for more information on the subject and how it pertains to your specific situation.

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Last Modified:  November 02, 2006