The Tax Desk: Record Retention

One of the most common questions we get at tax time is how long should tax returns and supporting documents be kept. Listed below are general suggestions for record retention:

• Tax Returns (Basic) – Seven Years - The IRS can audit tax returns for up to three years after they have been filed. If the IRS suspects under reported income, they can audit up to six years after the filing date.

• Tax Returns (Complex) – Permanently – If there are complexities involved with the tax return, you will want to hang on to the returns permanently. This includes returns of the self-employed and those with rental properties.

• W-2s, 1099s, & Bank Statements – Seven Years - These documents have a direct impact on your tax returns and should be kept for seven years as well.

• Year-End Brokerage Statements – Disposition of Assets + Seven Years – These documents may be needed to prove your stock basis.

• Real Estate Purchase Documents – Ownership of Property + Seven Years – There are often tax issues that arise in the year a property is sold so it is recommended to keep these records for seven years after the disposal.

• Paystubs – One Year - Make sure you keep the final paystub of each year and compare it to your W-2 form. Also lookout for possible deductions listed on the paystub (i.e. payroll donations, union dues). Stubs from the rest of the year can be shred. One exception to this rule is if you are applying for a mortgage or refinancing, as the lender will ask for paystubs as proof of current income.

• Life Insurance Policies – Life of the Policy + Three Years

• Estate Planning Documents – Permanently – Although your attorney often keeps a copy of your will, trusts, and powers of attorney, you should always keep a copy of these for yourself.

• Divorce Documents – Permanently – Tax issues are decided in a divorce decree and may need to be referenced.

Upcoming Dates

February 15 – All brokerages must send out 1099-B forms which included all stock transactions for the year.

April 17 – Deadline for individuals to file their 2011 taxes or file a six month extension. Please remember that an extension to file is not an extension to pay tax liabilities.

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The Tax Desk periodically addresses tax topics that impact individuals and small businesses in the Southland area. Please feel free to email me any ideas you would like discussed or any questions you have and I will include them in future blogs. All questions can be emailed to jim@daemicke.com

James Daemicke is a CPA at Daemicke Financial Group, 7250 W. College Dr., Suite 1SE, Palos Heights, IL  60463. Daemicke Financial Group is a tax accounting firm that has been located in Palos for over 35 years. www.daemicke.com

IRS CIRCULAR 230 DISCLOSURE: 
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter.