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The Records You Should Keep

December 24, 2013

This is an updated list of a previous blog.  As the year is ending, you can consider reducing your clutter by getting rid of records you do not need to keep.  For documents you want to retain, you can consider scanning and saving them digitally, but I would also keep originally signed legal documents.  When organizing your files, please remember these are general rules concerning your records.

Income Tax Returns and Related Items:  Keep all federal and state income tax returns and supporting documents (i.e. items confirming your income and/or deductions) for a minimum of six years after the return’s filing date.  Why?  The IRS can assess additional taxes within three years of its filing date, but has up to six years in which to make a tax assessment if the IRS determines that a substantial amount of income was omitted from the return.

Also, the tax returns and back-up income data are a “road map” to facilitate settling your affairs or to assist someone handling your affairs. This will provide a very good idea of what assets you have and where they are. Put each year’s return and data in an envelope (or back up disk) marked with the year on it, and the date (six years later) you should dispose of it.

Keep all final settlement letters of tax audits for at least six years after the date of the close of the audit.

Gift Tax Returns:  If you ever made gifts where you filed federal gift tax returns, those returns along with the back-up should be retained forever.  These returns will be needed to be filed with estate tax returns.

Mailing Receipts:  If you mail your return by certified mail, or by an express carrier, keep the receipt with your copy of the tax return.  Make sure the receipt shows the date the return was mailed.  If your return is filed electronically, keep a copy of the electronic filing confirmation.  In the event the return is misplaced or lost by the tax authority, this documentation will save you from late filing or payment penalties.

Residential Property Records:  The tax laws allow part of the gain to be tax-free when you sell your residence.  However, you still might have to substantiate the amount of the gain.  Because of this, you need to keep closing statements from all home purchases and sales and records of amounts spent for home improvements.

Stock and Bond Records: Keep records of your investment (e.g., stocks, mutual funds and bonds) purchases.  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 them. In addition, keep records that show a return of capital dividends and complete back-up of DRIP (dividend reinvestment plans) additions which establish your basis in those shares.

Because of the potential of class action lawsuits that might affect securities you owned and your need to furnish proof of your period of ownership if you want to be included in the class, I suggest you keep all records of your stocks and bond buys and sells for at least ten years.

Tax tip: If you’ve owned DRIP or other stock for many years and do not have the back-up information and want to dispose of those stocks, consider using them instead of cash to make your charitable contribution.  You don’t need your basis; you will get a deduction for the full value of the stock; and do not have to recognize the capital gain on those shares.

Gifts or inherited assets:  Keep all records showing your basis of inherited assets, or assets received by a gift.  These will be needed if you sell the assets, and might be needed if you are involved in a marital separation.  If you received a gift of property or inherited assets, and you do not have the tax basis, now is a good time to try to get it.

Medicaid applications:  People applying for Medicaid need to produce all bank and brokerage statements for the full five years before their application date.  For this reason, I suggest retaining these records for five years.

Rental Real Estate Records:  For any rental real estate or depreciable business property that you own, keep records of the property’s cost, the purchase date, costs of all improvements, the method used to calculate depreciation and a schedule of all depreciation claimed on the property.  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.  You need to keep current leases handy, and I would also retain the immediate preceding lease for that property in case of rent control or other claims are made against you and you would need to refer to the lease.

Partnership and Business Agreements:  You should retain all partnership, member, corporate organizational, buy/sell or cross purchase agreements as long as you have an interest in any currently owned business interest or entity.  You should also retain all basis calculations.

Employment Contracts:  Any employment contracts, stock purchase, option, restricted stock or similar agreements should be retained as long as you are employed by the company and then at least through the date of expiration of any of the commitments should they go past your employment.  It is also important to have these handy for your heirs if you die and there are limited exercise periods that survive you.  I also suggest preparing a separate calendar of exercise dates so you do not lose track of deadlines for any opportunities.

Art, Jewelry and Collectibles:  Keep all receipts of purchases as long as you own the property.  If any are sold put the receipts with your tax information for the year of sale and retain with those records until it is time to discard that year’s tax information.  These will be needed to substantiate cost basis when sold and if you need to establish the loss for insurance purposes.  In the event you donate any to charitable organizations for their use, you will need the cost basis for reporting the gift for deduction purposes.

Military papers:  Military benefits, discharge, decorations and perhaps military burial arrangements should be retained permanently.  I know someone that applied for, and was granted, partial military disability benefits 65 years after serving in World War II.

Personal Records:  Keep a permanent file of personal records –such as marriage license, divorce agreements, prenuptial agreements, name change papers, family trees and birth certificates.

Retirement Plans:  If you have made nondeductible contributions to an IRA, 401k, 403b or employer retirement accounts, maintaining records of these contributions will facilitate proving, and reducing, the tax liability when funds are withdrawn. You should also retain back-up of Roth IRA conversions that were taxed. For this you can keep the tax return for the years the tax was paid.  Also, retain all current plan documents and copies of all designation of beneficiary forms.

Legal Judgments and Loan Satisfactions:  I recommend keeping these forever.  This is irrefutable proof that you do not owe those debts or obligations.

Insurance Policies:  All current and in force policies should be kept in an easy to access place.  This includes every type of insurance policy including life, disability income and long term care.  I would retain the previous two years’ policies so that you would have a comparison if you need to make a claim, and to check rates and coverage.

Passwords:  Keep these in a safe place.

General Rule:  When in doubt about a document, keep it.

One Comment leave one →
  1. Robert Nagler permalink
    December 24, 2013 1:55 pm

    Hi Ed This a good list and it is very helpful for my estate planning

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