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What the IRS Wants You To Keep

Dear Jo the Clutterbuster:

It's tax time again. I can't decide which pieces of paper are important, which can be discarded, and which ones I need to retain.

I'm afraid I will be audited, won't have the correct paper back up and then I'll go to jail .

What exactly does the IRS want me to keep?


Terrified by Taxes

Dear Terrified:

April 15 looms on the horizon. You made a promise to yourself that the moment the W2's arrive, you would gather up the scrips and scraps of paper that are squirreled away around the house.

If you are still using the 'paper bag' filing system, you may want to contact me to design a paper management system that will work for you and your family. For those of you who want to de-clutter on your own, be sure to read the next 3 blog entries on: Creating a Paper Management System.

Be sure to always check with your accountant for your specific personal guidelines.

What the IRS Wants You to Keep

Audit Reports: Forever

Bank Deposit Slips and Statements: 6 Years

Brokerage Statements: Keep until you sell the security
You need the purchase/sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.

Credit Card Receipts:
Keep your original receipts until you get your monthly statement; toss the receipts if the two match up. Keep the statements for seven years if tax-related expenses are documented.

Current Contracts and Leases: Life of Contract, plus 3 Years

Housing Records: As long as you own the home, plus 6 years.
Keep all records documenting the purchase price and the cost of all permanent improvements -- such as remodeling, additions and installations.

Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent's commission, for six years after you sell your home.

Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. This adds up to a greater profit (also known as capital gains) when you sell your house. Therefore, you lower your capital gains tax.

Insurance Records: Life of the policy, plus 10 years.

Investment Records: 6 Years after sale of the investment.
Discard your monthly statements once you receive the annual summary that reflects yearly activity.

IRA Contributions: Forever
If you made a non-deductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.

Legal Correspondence: Forever
Marriage Certificates, Death Certificates, Divorce Papers, etc.

Paid Bills: Current Year
Go through your bills once a year. In most cases, when the canceled check from a paid bill has been returned, you can get rid of the bill.

However, bills for big purchases -- such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. -- should be kept in an insurance file for proof of their value in the event of loss or damage.

Pay Check Stubs: Current Year
When you receive your annual W-2 form from your employer, make sure the information on your stubs matches. If it does, toss the stubs. If it doesn't, request a corrected form, known as a W-2c.

Retirement and Savings Plans: From one year to permanently
Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then toss the quarterlies.

Keep the annual summaries until you retire or close the account.

Tax Returns and Supporting Documentation: 7 Years
The IRS has three years from your filing date to audit your return if it suspects good faith errors.
The three-year deadline also applies if you discover a mistake in your return and decide to file an amended return to claim a refund.

The IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more.

There is no time limit if you failed to file your return or filed a fraudulent return.

Warranties/Guaranties: Life of the Product or time limit specified in warranty.

Don't forget:

Be sure to always check with your accountant for your specific personal guidelines.

*The basic records retention rules are based on an article by Maria Garcia from Get Organized Now and from her research at www.bankrate.com.