Paperwork – What to Keep?

All the different types of paperwork that accumulate over the years can be overwhelming for many, and it is very important to know what to keep and what to toss into the circular filing bin.

Statute of Limitations

At the very least, know this: the statute of limitations is three years from the date a person filed or three years from the due date, whichever ends up being later. Make sure to keep all documents that are pertinent to taxes from those years. Within those three years, the IRS can audit you and the documents you decided to keep will become very important.
There are a few exceptions to the rule above, however. The statute of limitations can become six years if the IRS thinks there was an underestimation on your income by 25% or greater. In addition, there is no statute of limitations if you do not file a tax return or the IRS believes there may be some kind of fraud involved.

Financial Markets/Accounts

Any documentation that has information on buying or selling securities should be in safe keeping. Most brokerages will send you this information after December 31 through the mail or electronically. If for some reason you do not receive this information, make sure to contact your brokerage. Most companies have no problem in providing this documentation. And remember, you have up to seven years to take deductions for worthless securities.
In the case of individual retirement accounts (IRA’s), you must keep copies of Forms 1099-R, 5498, and 8606 until all money is taken out of your IRA accounts. The last thing anyone wants to do is overpay in taxes.

Real Estate Owners

If you happen to be a new homeowner, closing documents should be kept, along with the yearly mortgage statement, and invoices and receipts if you have made improvements to the property. It can be a great feeling getting tax deductions for making your house nicer. Also, keep real estate records for the entirety of your ownership, and then for three more years after selling.

Miscellaneous Expenses

If you have children and you must pay for child care services, save the records of any expenses you incur from them. Also, don’t forget about medical and dental expenses. These can all hold valuable savings at the end of the year.

Multiple Year Matters

According to the IRS, documents that pertain to multiple years should be saved until the deductions don’t matter anymore on your taxes, plus seven more years. These documents may include carryforwards or carryovers of charitable deductions.

I filed back in 2010…wait…didn’t I?

Completed tax returns from the past can be handy to have so that you can prove to anyone that you actually filed in certain years. Some say to keep these documents indefinitely, others decide to only hold on to them for six years after the taxes are due or filed.

Tips and Tricks

Splurge on a Paper Shredder for documents that you have no use for anymore. Spending $100 on a shredder seems like pennies compared to those unfortunate souls that have experienced identity theft.

Last but not least, don’t be afraid to test out some new technology. Try putting your information into the “cloud.” It sounds pretty complicated, but it is just a matter of learning what a cloud is for five minutes on an internet forum, and you should be set. Having a backup set never hurt anybody.