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Well-organized financial records will save you time and money, not only in taxes but also in tax preparation.

Here's a quick rundown of suggested recordkeeping for individuals.

  • Keep your critical records indefinitely. Other records can safely be discarded after several years.
  • Keep tax returns (and any records used to prepare them) at least three years after the filing date if you have only W-2 and interest income, preferably six years if your returns are more complex. The IRS has six years to audit you if it suspects you've underreported income by more than 25%.
  • For investments in real estate, keep records until at least six years after the filing date of the return reporting the sale of that property.
  • For investments in stocks, bonds, and mutual funds, keep yearend brokerage statements and 1099s and toss interim statements. Retain all brokerage confirmations showing your cost basis.
  • For your home, keep the settlement statement and records of home improvements. These validate your cost basis for future home sales if they are needed.
  • Some records should be retained permanently. This applies to IRAs and pensions (Forms 1040, 8606, 5498, and 1099-R), wills, divorce decrees, and most other legal documents.
  • You don't need an elaborate recordkeeping system. File tax returns separately by year, and file investment records by broker. For expenses, even an accordion file tabbed by category works wonders. Within a given category, use a separate envelope for each year's receipts and cancelled checks, and enclose a tape showing the expense total.

If you have questions about recordkeeping, or if we can assist you in setting up a system that works, contact our office. We're here to help.