The Right Documents to Retain for the 2014 Personal Tax Season

The following blog post provides tips from the SC&H Group Tax Services team regarding which financial documents to retain during the 2014 tax season.

As we all begin compiling our 2014 tax information, now is a good time to consider and act upon prudent document retention guidelines.  When organizing your files, please remember these general rules concerning your tax records:

  • Income Tax Returns and Related Items: Keep all federal and state income tax returns and supporting documents (i.e., those items confirming your income and/or deductions) for a minimum of three years after the return’s filing date. The more prudent route is to keep these returns and documents for six years. Why? The IRS can assess additional taxes within three years of its filing date, but has up to six years to make a tax assessment if it determines that a substantial amount of income has been omitted from the return.
  • Mailing Receipts: Keep with your file copy of each tax return the U.S. Postal Service receipt — i.e., the registered mail receipt — showing the date the return was mailed. If your return is filed electronically, keep a copy of the electronic filing confirmation with a printed copy of the return. In the event the return is misplaced or lost, this documentation will save you from penalties.
  • Residential Property Records: Keep settlement records from all of your home purchases and sales in a safe place. This will help you determine the basis for any future sale and gain determination. In addition, keep records of the amounts that you spend for home improvements with this file. These records will supplement other documentation you have showing your basis in the house — if and when it comes time to compute your taxable gain.
  • Stock and Bond Records: Keep records of your investment purchases (e.g., stock, mutual funds, and bonds) that show the purchase price, sales price, and commissions. Besides providing you with a date for determining the type of gain – long-term versus short-term — these records establish your basis in the investment and help to compute the gain/loss when you sell. In addition, keep records that show a return of capital on your investments. Once you sell the security, keep these records with the tax return on which you report the sale.
  • Depreciation Records: For any rental real estate or depreciable business property that you own, keep records of the property’s cost, the purchase date, the method used to calculate depreciation, and a schedule of all depreciation claimed on the property in previous years. Maintain these records until you sell or dispose of the property. Once you sell the property, keep these records with the tax return on which you report the sale.
  • Personal Records: Keep a permanent file of personal records — such as divorce agreements, copies of estate and gift tax returns under which you received property, etc. — since they can provide a basis for determining your tax liability when you dispose of the property.
  • Other Records: There are other situations where you will benefit from keeping records. For example, if you have made nondeductible contributions to an IRA or Roth IRA, maintaining records of these contributions will facilitate proving your tax liability when funds are withdrawn from the IRA.

Of course, if you are able to dispose of prior year tax and related data, as always, please shred and properly dispose of all financial documents.

If you have additional questions about financial document retention strategies for the 2014 tax season, please contact an expert from SC&H Group’s Tax Services team here.