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How Long Should You Keep Your Tax Records?
Posted By timparker On 04/19/2012 @ 2:10 pm In Taxes | 4 Comments
I don’t have any evidence of this but I would guess that the one of biggest mistakes made by most of us during the year is not keeping important receipts and paperwork. I don’t know many people who claim that they have a talent for keeping their important documents organized. In fact, most of the people I know are the type that can’t keep track of things at all and that can be detrimental during tax season.
Since its tax time, how long is long enough to keep your tax or financial documents? When can you throw them away or should you ever?
You should keep your tax documents as long as you can . Although the IRS generally has up to three years to request an audit, there are plenty of reasons to save those documents for a much longer period of time. First, they contain historical information about your income and other financial metrics. If you’re applying for a mortgage or certain insurance products, your tax return contains much of the information you need for the application.
Before using Turbotax, I used to thumb through as many past years of returns as I could to help my remember past deductions and I have even used my returns as a way to measure how well I’m meeting my personal income targets. Your tax return serves as a great financial snapshot.
For these reasons, it’s best to keep your tax returns indefinitely but parts of your return can be shredded after three years. Your W-2s, 1099s, and other supporting documents probably aren’t needed for more than three years.
Knowing your cost basis for all of your investments becomes important when you finally sell it causing a realized gain that subjects you to the capital gains and/or dividend tax. Although that information is easily found on your broker’s website, it might take some digging if you have to find it 20 or 30 years after you purchased the product and how do you know that your broker won’t get bought out and their computers are purged of old information? It happened to me once when my bank was purchased. Keep this information as long as you hold the investment.
Modern technology leaves us no excuses when it comes to holding on to important documents. Not long ago, I ordered a scanner from one of the online computer stores and paid $49 for it. I’ve scanned all of my old financial records freeing up a lot of file cabinet space. Then, I took those records, made a password protected file out of them, and put them in my dropbox account. Since I’m the better safe than sorry kind of person, I put them on a CD (because a flash drive is small and much more easily lost) and gave the CD to my mother to keep at her house.
When I was growing up my parents kept multiple file cabinets of bank and investment statements. I, as an adult, don’t do that. I can find all of my bank statements online and my bank offers access as far back as four years free of charge.
It may be well advised to download these records and store them in digital format along with your tax returns if you are worried that those records would become unavailable on your bank’s website if they were purchased or went out of business. Although bank records probably aren’t need much longer than your tax return, keeping these archived in digital format makes it easy to save them indefinitely.
Tax returns, much like your birth certificate should never be thrown away. Instead, scan and archive. As technology changes you may have to transfer it to the latest storage device. Other supporting documents to your tax return need to stay with you for at least three years but while you’re scanning your tax return, you could scan the accompanying documents as well.
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 as long as you can: http://www.kiplinger.com/columns/ask/archive/which-tax-records-to-keep-and-which-to-toss.html
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