Does Your Record Keeping Need Improvement?
Written by Maurice Saab
If pulling your records together to file your 2013 tax return was more difficult than you would like it to be, maybe it's time you revamped your recordkeeping systems.
Here's a quick review of basic recordkeeping needs. You should keep records that support income, deductions, and credits you plan to report on your tax return, including W-2s, 1099s, 1098s, cancelled or substitute checks, and receipts. You should keep track of all bank statements, deposit slips, and investment records. These can be electronic files instead of paper.
Copies of all tax records should be retained until the statute of limitations expires. Generally, this is three years from the due date or from the date you filed your return, whichever is later.
However, if you under report your income by more than 25 percent, the statue of limitations for any audit increases to six years. If you filed a fraudulent return or have not filed, there is no statue of limitations. In these cases, audits can be filed at any time. Therefore it is advisable to keep documentation for tax returns for seven years and to retain copies of filed returns permanently.
Records used to determine the basis of property, such as your home or other real estate investments, should be kept for seven years after you have disposed of the property. You should also retain all records relating to IRAs for seven years after all the money has being withdrawn.
Records that pertain to your estate, such as your will, living will, and power of attorney, should be kept throughout your life and should be updated as necessary to account for any estate tax law changes or family changes. It's also advisable to keep records relating to the cost of all assets in your estate. Knowing what records to keep and how long to keep them can save time and money.