Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • May 12

    “Success is simple. Do what’s right, the right way, at the right time.” – Arnold Glasgow

    Now’s the best time to get rid of unnecessary paperwork, as well as to ensure that you caught everything for your 2015 tax return.

    But before I get to what to do if you find something pertinent to your recently-filed tax return, here’s a guide for how long to keep your records…

    Taxes: Seven years
    Richard’s Reasons Why:
    There are three, actually:
    1) The IRS has three years from your filing date to audit your return if it suspects good-faith errors.
    2) The three-year deadline also applies if you’d like to make some sort of amendment because you discover a mistake in your return and can claim a refund.
    3) The IRS has six years to challenge your return if it thinks you underreported your gross income.
    All this adds up to keeping that info for seven years. Beyond that, there’s no reason — except for posterity.

    IRA contribution records: Permanently
    Richard’s Reason Why:
    You’ll need to be able to prove that you already paid tax on this money when the time comes to withdraw.

    Bank records: Usually just one year
    Richard’s Reason Why:
    Those related to your taxes, business expenses, home improvements and mortgage payments will obviously need to be included for next year’s taxes. But, unless there is some sort of emotional or posterity reason, get rid of everything after one year.
    Brokerage statements: Until you sell
    Richard’s Reason Why:
    To prove whether or not you have a capital gain or loss for tax purposes; after this point, shred it.

    Household bills: From one year to permanently
    Richard’s Reason Why:
    When the canceled check from a paid bill has been returned, you can shred the bill with a clear conscience. However, bills for big purchases — such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. — should be kept in an insurance file for proof of their value in the event of loss or damage.

    Credit card receipts and statements: 45 days/Seven years
    Richard’s Reasons Why:
    Some families don’t even bother to match up their statements, but if you do so, shred the receipts once you’ve verified everything. There’s no reason to keep everyday receipts – unless they support a deduction — beyond this point. For tax-related purchases, you need only keep the statements (and receipts supporting tax deductions) for seven years — after that, shred it, baby!

    Paycheck stubs: One year
    Richard’s Reason Why:
    This is to verify that when you receive your annual W-2 form from your employer, the information from your stubs match. If so, shred all of the stubs … if not, request a corrected form, known as a W-2c. After that’s been handled — shred.

    House/condominium records: Six years/permanently
    Richard’s Reasons Why:
    You’ll want to keep all records documenting the purchase price and the cost of permanent improvements — such as remodeling, additions and installations, as well as records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for six years after you sell your home.

    Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. Therefore, you lower your capital gains tax when you sell your house.
    Now, in this cleansing process, sometimes you’ll find a receipt or documentation which really would have changed your prior year tax return. That’s when you might have us file an “Amended Return”. However, this decision should be balanced against the cost of doing so, as well as the expected benefit — often these items can be dealt with the following year.
    But here are some other, common reasons to amend…

    * You neglected to report some income earned.
    * You claimed deductions or credits you should not have claimed.
    * You did not claim deductions or credits you could have claimed.
    * You filed under one filing status, but you should have filed under another.

    If you find something like this, let us help you.

    Regardless, let this be a cleansing process for you, and sleep easy knowing you’ve handled this stuff properly.

    Oh, and make sure you use a good shredder!