With your tax return long since in the mail, now's the time for spring cleaning - with an eye toward simplifying your tax records and protecting yourself in the event of an audit.
The first order of business is to tackle your overflowing files. Typically, you should hold on to tax returns indefinitely and to supporting documents for as long as the Internal Revenue Service can demand to see them in an audit.That threat usually ends three years after the return is due, which means that most records from 1994 and earlier can be tossed.
There are exceptions, though. Some documents used to prepare previous returns will also be needed for future ones, such as statements listing nondeductible contributions to your individual retirement account, home-sale records and receipts for business property that you're still depreciating.
And you'll need to hang on to brokerage statements and other papers that establish the tax basis of your investments until three years after you sell the assets, regardless of when you made the pur-chase.
Good records will help you identify future deductions, as well as support those deductions should the IRS challenge you. A missing receipt can cost you dearly if an auditor comes calling.
The IRS urges taxpayers to keep the following for at least three years:
- Statements from mutual funds and brokerage houses, as well as Forms 1099 and 2439. Publication 550, Investment Income and Expenses, and Publication 564, Mutual Fund Distributions, provide more information for fund investors. Both are available by calling the IRS at 1-800-829-3676.
- All W-2 and 1099 forms, as well as bank statements, brokerage statements and K-1 forms.
- Receipts, invoices and/or canceled checks as proof of payment for deductible expenses.
- Home-settlement statements, proof of payment and insurance records.