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Record Keeping Guidelines

Over the years, a number of clients have asked how long they should retain their tax records. Here are some guidelines you can use:

Keep your tax returns indefinitely. There may be some information on these returns that could be needed in the future, i.e. the basis of your home, dividends declared, partnership losses claimed, etc. Old returns are very valuable sources of information.

Generally, the IRS has three years from the date of filing your return to assess additional tax. Thus, in general, you should hold all tax records and receipts for at least three years after you file your return. Note: if you file late, your three year period does not begin until you actually file. It does not begin on the due date.

If more than 25% of your gross income is omitted from your return, the three year rule changes to six years. Therefore, important records, bank statements, and those records involving large sums of money should be kept for six years after the return is filed.

There is no statute of limitations in cases of fraud.

Some records may need to be held even longer. Records relating to the cost basis of property you sell (your home or stocks) need to be kept for three years after the date of sale. If you sell your principal residence for more than $250,000 ($500,000 if married filing jointly) you will have to prove the cost basis of your residence in order to minimize or eliminate taxes. This basis would include original cost, improvements, and depreciation taken. Your original receipts and old tax returns would be needed to prove your basis in this property.

In general use the following Guidelines:

1. Keep tax returns indefinitely.

2. Keep the following for three years after filing:

Forms W-2 and 1099.
Receipts and canceled checks for all deductions.
Entertainment and travel diaries.
Work papers used in compiling your tax data.
3. Keep the following for six years after filing:

Bank statements.
Records from transactions equaling or exceeding 25% of gross income.
Records showing gross income for your business (invoices, logs, etc.)
4. Keep the following records until three years after an asset is sold:

Settlement sheets on home purchases and refinancing.
Receipts for all improvements.
Receipts for “fixing up expenses” related to sale of home.
Dividends reinvested in stock dividend reinvestment programs.
Records of stock purchases, splits, and partial sales.