How Long Must You Keep Financial Records?

Now that you’ve gotten your tax returns filed and are looking at your bulging folder of receipts, notes and records, it is logical to wonder, “How long should I keep all this paper and all the paper from previous years?”

  • Tax Returns. With regard to your tax returns, the IRS audit time frames are crucial. The IRS can audit any return for up to three years from the filing date. The IRS has six years to challenge the return if it suspects under-reporting of gross income by 25% or more and can proceed after non-filers or filers of fraudulent returns for an indefinite period. Therefore, it is suggested that you keep your tax returns indefinitely.
  • Supporting Documents. Supporting documents, such as W-2’s, 1099’s, cancelled checks and receipts, can be disposed of after six years, except as indicated below.
  • Residence Records. All records concerning your home should be kept for as long as you own the home, plus six years. (This includes records of expenditures for improvements, as well as records from the acquisition and sale of the property. Your expenditures are added to the base price of your home and reduce your capital gain when you sell it.)
  • IRAs. IRA account contribution records should be kept indefinitely. Most significant are records of contributions that were not deductible. These are necessary to prove that you paid the tax on the non-deductible contributions, so that you do not have to pay it again.
  • Investments. Finally, records for stocks, bonds, mutual funds and other investments should be kept for at least six years after the investment is sold. Annual statements from fund managers and brokers, detailing all the transactions, may be retained in lieu of monthly statements.
If you ever have a question on record retention, call us before you throw it away!

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