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Client Resources


How long to keep tax returns and records? Not surprisingly, we get asked this question a lot by people looking for a cutoff date to toss paperwork relating to taxes that they have been saving for years.

The answer depends on the type of document and the kinds of transactions that you engaged in.

You should keep returns at least three years. As a general rule, that is how long the Service has to question items on your return and to bill you for any additional tax. It is also the time frame for you to file an amended return and seek a refund.

However, IRS can go back up to six years if a return omits more than 25% of income. If fraud is proved, there is no limit. State tax returns may have to be retained longer.

Don't automatically throw out all returns and records after three years. Look over old documents to see if you might need any parts of them in the future.

Hold on to records that help establish the adjusted basis of real estate, including major repairs or improvements you made. You should have a separate file for each piece of realty that you own, including rental property and your home.

Retain the files until at least three years after you dispose of the property.

Ditto for securities transactions. Be sure to keep your purchase documents for taxable mutual funds, stocks, and the like. You will need to include the purchase date and cost on your return in the year you sell the assets. Among other records to keep: Those showing stock splits, dividend reinvestments and nontaxable distributions.

Heed this advice for property that you either inherited or received as a gift:

For inheritances, you will need to know date-of-death value. For gifts … the donor's cost. So, you would be wise to keep documentation of these figures until after you sell the asset.

If you've made nondeductible payins to IRAs or post-tax payins to 401/k)s ...

You should keep records until three years after the accounts are depleted. Be sure to file Form 8606 to report nondeductible IRA contributions. If you don't, those contributions will be treated the same as deductible payins when withdrawn. And remember that all distributions from your traditional IRA will be subject to tax unless you can show otherwise. So, make sure you retain copies of Form 8606 and your 1040s for each year that such payins are made. It would also behoove you to keep Form 5498 or similar statements that reflect the amount of IRA distributions.