Taxes

May 27, 2016 / John J. Furey

Record Retention for Tax Related Documents

During tax season, clients often ask how long they should be holding on to certain tax related documents.  To help answer these questions we have created a list of several documents and the minimum retention period associated with them.

If you have any questions about this information please do not hesitate to contact our office.

Type of Document Minimum Retention Period
1. Tax Returns, if they are accurate 3 years following the date of filing or due date, whichever is later. This is the Statute of Limitations for an accurate return. Filing an amended return does not extend the Statute of Limitations.
2. Tax Returns, if they omit more than 25% of gross income

 

6 years following the date of filing or due date. This is the Statute of Limitations for a return that omits over 25% of income.
3. Documents related to a clearly fraudulent Tax Return or a Tax Return that was not filed

 

The Statute of Limitations never runs out so all documents need to be retained indefinitely.
4. Tax Returns for which the Statute of Limitations has expired Can shred, but may want to scan and keep copies of the Tax Returns, but not supporting documents, as proof of filing.
5. Tax supporting documents, such as W-2s, 1099s, K-1s, other records to support deductions or credits, such as credit card statements, bank statements, mileage logs, cancelled checks, proof of health insurance

 

Keep until the Statute of Limitations runs out.

IRS accepts copies of scanned documents as proof; so don’t need to keep all the original documents.

6. Pay Stubs and pay-related records Shred after confirming that your W-2 and annual Social Security statement accurately reflect all income, before-tax deductions and other items.
7. Traditional and Roth IRA records Keep records of contributions (Forms 5498 or 8606) until you withdraw all the money from the account.
8. Documents related to claiming depreciation, amortization or deletion deductions Keep related records for as long as you own the underlying property
9. Documents related to claiming a loss from worthless securities or a deduction for bad debts Keep related records for 7 years
10. Documents related to employees, including household employees Keep tax records for at least 4 years after the date the payroll taxes become due or are paid, whichever is later.
11. Documents for other special tax benefits not listed above, such as the 1st time homeowners credit Keep records for as long as the tax benefit runs, plus 3 years.
12. Documents for property, such as stocks, bonds, or real estate, that will result in a taxable event upon sale or other disposition Keep records to support capital gains or losses until sale or other disposition, plus 3 years.
13. Documents, such as deeds, settlement statements, and contracts, invoices or cancelled checks for capital improvements for a personal residence Keep records until sale or other disposition of the personal residence, plus 3 years.

There is an exclusion of $250,000 (single) or $500,000 (married) for any gain on the sale of a personal residence, provided certain conditions are met. Gain is the sales price less the cost basis, which is the purchase price plus any capital improvements.

14. Documents to support the cost basis for property received as a gift or inheritance Keep records to support the cost basis until sale or other disposition, plus 3 years.

Property received as a gift has the same cost basis as the donor’s cost basis.

Inherited property generally gets a step up in cost basis equal to the fair market value as of the date of death.

 

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