What Records Should I Keep For Tax Purposes?

Generally, you should keep all documents and records that relate to the sources of your income, your expenses and any potential deductions so that you can substantiate all information in your tax return.

Income encompasses a variety of different things. It is much broader than what you earn at your job. You should keep your Form W-2, pay stubs, bank statements, brokerage statements; and other documents that show other types of income that you earned, including tips, dividends, interest, rent, business income, capital gains and losses, annuities, unemployment compensation, prizes and awards, gambling winnings and Social Security benefits.

You should also keep records relating to your home and any investments that you hold. Documents relating to your home should show the basis/adjusted gross basis (which is used to determine if you have a gain or loss when you sell your home), the purchase price, closing costs and costs of any improvements. Types of documents to keep include closing statements, purchase and sales contracts, proof of payment and insurance records. Records relating to investments such as stocks, bonds and mutual funds should show purchase price, sales price and commissions. Examples of investment documents to keep include brokerage and mutual fund statements, Form 1099 and Form 2439.

In addition to documents showing your income, you should keep records that reflect expenses that may be deductible for income tax purposes. Such documents might include sales slips, receipts and canceled checks. The following list includes specific categories of expenses and documents you should keep:

  • Medical expenses exceeding 7.5% of your adjusted gross income — keep hospital bills, doctor bills, therapy bills and records of all other medical expenses that you incurred
  • Alimony — keep the divorce decree and separation agreement
  • Charitable contributions — keep cancelled checks and receipts from the organization that show how much you gave; records showing fair market value of property you donated; and records showing your out-of-pocket expenses when you perform services for a charitable organization
  • Mortgage interest — keep the Form 1098 (you will receive it if you paid more than $600 of interest)
  • Taxes — keep records that show how much you paid in real estate tax, state income tax (your state income tax return) and other kinds of taxes
  • Business use of home — keep documents showing the part of your home that is used and the expenses related to your business use
  • Casualty and theft losses — keep records that show the type of loss (flood, hurricane, theft), what you lost, photographs of damage, appraisals and proof of ownership
  • Child care expenses — documents showing the name, address and taxpayer identification number for all persons or organizations that provide care

When you get ready to file your federal and state returns, make copies of everything you file. Keep copies of your filed return along with all the documents supporting the information you included in the return.

How long should I keep tax records?

Keep records that support items on the tax return until the period of limitations runs out. The period of limitations is the period of time in which you can amend your return to claim a credit or refund or the IRS can assess additional tax.

The following period of limitations apply:

  • If you owe additional tax – 3 years
  • If you file a claim for credit or refund after you file your return – later of 3 years or 2 years after tax was paid
  • If you do not report income that you should and it is more than 25% of your gross income – 6 years
  • If you file a claim for a loss from worthless securities – 7 years
  • If you file a fraudulent return or do not file a return – no limit

Talk to your lawyer or accountant about how long to keep certain records.

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Robert M. Mendell

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