One of the questions that we get most often from our clients is, "What documents do I need to keep in regards to my taxes, and for how long?"
Of course, every situation is different, and your CPA can help you determine what you should keep based on your specific needs. However, there are a few general guidelines you can follow:
Tax ReturnsAs a general rule, you should keep copies of filed tax returns for at least three years. The IRS has a three-year period to question items on your return, and likewise, you have three years to file an amended return and seek an additional refund. However, keep in mind that the IRS can go back up to six years if they believe you have failed to report more than 25% of your income—or indefinitely if fraud is proven. For tax returns older than three years, it's a good idea to look over each return and keep anything you think you might need in the future.
Real Estate DocumentsYou should keep a separate file for each piece of real estate that you own, and keep any financial records relating to these properties for at least three years after you sell the property. If you have inherited a property, you'll need to keep a record of the value of the property at the date of death of the person who left it to you. If the property was a gift, you'll need to keep a record of the donor's cost.
SecuritiesFor financial transactions, like the purchase or sale of mutual funds or stock, you should keep all related documents for at least three years from the time that you sell the asset. This includes all purchase documents, any stock splits, dividend reinvestments, non-taxable distributions, and the cost of your return in the year that you sell the assets.
Business DocumentsIf you're a business owner, you should keep records of your payroll tax for at least four years, including wage amounts, payment dates, and employee information. You should also keep copies of all W-4 forms, payroll returns, and amounts and dates of any tax deposits. When it comes to employee healthcare coverage, you should keep all forms (like 1094 and 1095) for at least three years after their filing date.
These are just general guidelines—if you think you may need a document again in the future, it's always a good idea to hold onto it. Have a question about whether you should keep a specific document? Leave a comment below, or feel free to contact me anytime.