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Guidelines for Retaining Tax Documents by Adam Cohen, CPA


Posted on April 24, 2019 by Adam Cohen

If you filed your federal income tax return for 2018, congratulations! Now begins the tedious task of filing away all of the critical legal and financial documents you should retain for your own record-keeping purposes and to protect yourself in the event that your return becomes the subject of an IRS audit.

In general, it is advisable that you hold on to certain legal and financial documents for as long as they are in effect or you can be responsible for making payments. For example, keep documentation for insurance policies and retirement accounts, including IRAs and 401(k)s,  indefinitely. All documents concerning the purchase, financing and improvement of real estate should be retained during all of the years you own the property and at least three years after a property sale. The same is true to records of stock and other investment purchases and sales, for which you will need to demonstrate your original basis in the assets as well as the fair market value of the date of sale. Finally, documents relating to student loans, mortgages and alimony and/or child support should be retained until you have fulfilled all of your financial obligations under those agreements.

You should also be aware that the IRS has the right to assess additional taxes for three years after you file a return, or six years if you underestimate the gross income reported on your return by 25 percent or more. Therefore, it is a good idea to hold on to previously filed tax returns, including proof of income and deductions for at least six years. However, be advised that in the rare case that you failed to file a tax return or you willfully filed a fraudulent return, the statute of limitations may never run out; the IRS can go after you for both civil and criminal tax fraud at any time.

While there are no fixed rules regarding how long you should keep tax records, it is possible to minimize your record-keeping burden by considering the following guidelines. Moreover, to protect yourself from identity theft, be sure to shred all documents that you do not need to save, especially when they contain personal information, such as Social Security numbers and the numbers of financial accounts.

About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via e-mail at info@bpbcpa.com.

 

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.


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