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The IRS Is Keeping Records -- Are You?

One of the secondary problems with this whole IRS scandal has been that it's seeping my job even more into personal life:

* "Hey Tony -- call the IRS for me? I have some political enemies to persecute."
* "Tony, what are my chances for audit if I run a conservative poltical group, adopt some children, and speak out against the government?"
* "Tony -- did you get invited to the line-dancing?"

... alright, people don't really say those things to me.

But it is true that the IRS is coming up in conversations more than usual for this time of year.

And it's a good excuse for me to send out my information about record-keeping, because if you *do* get selected for audit, all of this information is still pretty important to keep. Many believe that in the age of the cloud, you don't need to keep paper copies of important documents.

That would be false.


Tony Khait, CPA, PFS's
"Real World" Personal Strategy Note

Khait, CPA, PFS's Tax and Financial Recordkeeping Rules of Thumb
 

All of this conversation about IRS correspondence (and the fact that it is that spring-cleaning time of year!) is a good reminder to consider how long you should be keeping your records.

Even in the days of cloud-document storage, it's important to have hard copies lying around -- in a safe place, of course. If you don't have a full safe, these are the sort of documents for which you may want to invest in a fire safe, at least.

But here is what you should consider for how long to keep them...

Taxes: Seven years
Tony's Reasons Why:
There are three, actually:
1) The IRS has three years from your filing date to audit your return if it suspects good-faith errors.
2)  The three-year deadline also applies if you'd like to make some sort of amendment because you discover a mistake in your return and can claim a refund.
3)  The IRS has six years to challenge your return if it thinks you underreported your gross income.

All this adds up to keeping that info for seven years. Beyond that, there's no reason--except for posterity.

IRA contribution records: Permanently
Tony's Reasons Why:
You'll need to be able to prove that you already paid tax on this money when the time comes to withdraw.

Bank records: Usually just one year
Tony's Reasons Why:
Those related to your taxes, business expenses, home improvements and mortgage payments will obviously need to be included for next year's taxes. But unless there is some sort of emotional or posterity reason, get rid of everything after one year.

Brokerage statements: Until you sell
Tony's Reasons Why:
To prove whether or not you have a capital gain or loss for tax purposes; after this point, shred it.

Household Bills: From one year to permanently
Tony's Reasons Why:
When the canceled check from a paid bill has been returned, you can shred the bill with a clear conscience. 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.

Credit card receipts and statements: 45 days/Seven years
Tony's Reasons Why:
Some families don't even bother to match up their statements, but if you do so, shred the receipts once you've verified everything. There's no reason to keep everyday receipts beyond this point. For tax-related purchases, you need only keep the statements for seven years--after that, shred it, baby!

Paycheck stubs: One year
Tony's Reasons Why:
This is to verify that when you receive your annual W-2 form from your employer, the information from your stubs match. If so, shred all of the stubs...if not, request a corrected form, known as a W-2c. After that's been handled--shred.

House/condominium records: Six years/permanently
Tony's Reasons Why:
You'll want to keep all records documenting the purchase price and the cost of permanent improvements -- such as remodeling, additions and installations as well as 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. Therefore, you lower your capital gains tax when you sell your house.



Warmly,

Tony Khait, CPA, PFS
(347) 673-6360