Your mom always told you: “save your important documents in a filing cabinet!”
You may wonder, “so, how long should I keep my documents ?” We’ve got some tips.
It’s a good idea to keep your tax returns indefinitely. You can generally toss supporting tax records three years after you file your return, which is the time the IRS typically has to initiate an audit.
The following are supporting documents you should save for at least three years:
Forms W-2 and Forms 1099 reporting income wages, interest, dividends, and capital gains or losses
Forms 1098 (if you deducted mortgage interest)
Canceled checks and receipts for charitable contributions
Records showing expenses for other deductions and credits claimed on your income tax return
Records showing eligible expenses for withdrawals from health savings accounts or section 529 college-savings plans
Records to substantiate any business deductions taken on Schedule C including the original bill of sale (or receipt) for any assets used in your business
Keep receipts showing any retirement contributions, such as to an IRA, simplified employee pension (SEP) or 401(k)
Forms 1095 showing that you had eligible health insurance or records showing that you met the criteria for an exemption
What Else Should You Save?
You’ll need to save some tax records longer than the three-year audit period. One of the biggest mistakes people make is not keeping records that establish the basis of property and investments used to determine the taxable gain or loss when you sell. You should save purchase records for mutual funds, stocks and other investments held in a taxable account for at least three years after you sell the investment because you’ll need to report the purchase date and price when you file your taxes for the year in which they are sold. Brokers must report the cost basis of stock purchased in 2011 or later and of mutual funds and exchange-traded funds purchased in 2012 or later, but it helps to keep your own records in case you switch brokers or there is a discrepancy. If you inherit stocks or funds, save records of the value on the day the original owner died to help calculate the basis when you finally sell the investment; keep these records for at least the three-year audit period after the sale. Also keep records of reinvested dividends that you’ve already paid taxes on so you won’t be taxed on them again when you sell the stock.
Save records of your home purchase as well as records of any significant home improvements that increased your home’s value (such as the cost of adding an extension or a new kitchen) for at least three years after you sell your home. Up to $250,000 in home-sale profit is excluded from taxes if you’re single (or up to $500,000 if you’re married filing jointly) if you live in the house for at least two of the five years leading up to the sale. But you could end up with a tax bill if you don’t live there that long or if your profits are higher. In that case, you can add the cost of those capital home improvements to the cost basis of your home when you sell and reduce any capital gains. See IRS Publication 523, Selling Your Home, for more information about the expenses that can be added to your basis.
Keep Form 8606 showing any nondeductible IRA contributions until all of your IRA money is withdrawn (plus at least the three-year audit period) so you can prove you’ve already paid taxes on the contributions and won’t be taxed on them again.
Curious about your particular situation? Reach out to us and we’ll help you know what you should be saving!
We’d like to introduce you to Fred Boutique. This boutique shouts style and individuality while catering to each and every shopper. Who would not enjoy a latte while checking out the latest fashion designs from brands such as Elizabeth & James, Joie, and Waverly Grey? Shereen Koshnoodi and Kelley Frey, business owners of Fred Boutique, joined forces in 2012 to bring to life this modern take on caffeinated shopping; Shereen sums up their motivation in one word: passion. She says. “…I’ve always loved coffee shops and cafes so I wanted to combine the experience”. These talented ladies have truly made this dream come to life. Fred Boutique provides a relaxing, intimate and unique shopping atmosphere for customers.
Of course, keeping Fred Boutique running has its share of challenges. These challenges include keeping track of expenses and monitoring all inner workings of a small business. Shereen says,” [Alfano & Company] has helped me keep track of my business. There are many moving parts [to Fred Boutique]. Our accountant, Liana, provides me with quarterly reports and helps me keep track of expenses.”
At Alfano & Company we find it rewarding to witness the continued success of our clients and we look forward to seeing how Fred Boutique continues to grow and thrive. We are happy to congratulate Kelley and Shereen on the opening of their second Fred Boutique, in Westport, CT. “We want our customers to feel the love and passion that we have for what we do,” Shereen says. Visit Fred Boutique’s Old Greenwich location for a classic shopping experience. Step into Fred Boutique’s Westport store to ‘sip and shop’. We have no doubt you will feel the passion and love these entrepreneurs have for both fashion and their growing business.
We’d love to help your business grow too! Contact us for more information on our elite bookkeeping and advisory services. Visit us on the web at www.alfanocpa.com.
Alfano & Company strives to provide our business clients with personalized service to help you know not only where you are, but where you are going. This is made possible by amazing team members and their unique talents. Cynthia Borda is one ofthese invaluable team members whom we’d like to shine our spotlight on.
Cynthia handles the bookkeeping for a broad range of clients from a variety of industries- restaurants to construction companies. This helps her understand the ins and outs of how successful businesses operate. Cynthia breaks down for us specifically what her work entails: “I analyze different reports. The most common…include reconciliation reports, profit & loss [reports], and balance sheets. When I analyze reports I make sure everything is classified properly…I also compare the reports to last year to make sure nothing looks out of the ordinary.”
Her keen interest in each individual client helps her be able to advise in the most effective manner. Cynthia’s degree in accounting helps her daily as she says, “I understand why I am classifying financial transactions in a certain way or creating a journal entry. I understand the reason [behind]what I do. This helps me to better explain and answer any questions that [my] clients may have.” With her background and keen eye, she is able to see when adjustments can be made to aid in a businesses’ success.
Cynthia also prides herself in having an active share in a volunteer worldwide educational work. What effect has volunteering had on her? It has helped her to be a diligent worker, who is both dedicated and thorough. This volunteer work affords Cynthia the opportunity to interact with a wide range of people. As she explains, “This has helped me to learn how to communicate better with the clients and to [cater]to their needs.” We can certainly see these traits in the way Cynthia interacts with her bookkeeping clients.
Where is Cynthia when she’s not comparing reports or volunteering? She’s probably on a plane! Cynthia loves to travel! This summer she enjoyed visiting Argentina to spend time with friends and attend a wedding. Cynthia says, “I love [traveling]. It gives me the opportunity to taste other cultures by means of food, art, architecture, and history.” We wish Cynthia safe travels as she continues to expand her horizons and explore the world!
We appreciate Cynthia for being a dependable, hard-working team member at Alfano & Company. Does your business need a dependable bookkeeper like our very own Cynthia? Please contact us! We’d love to meet you.
Alfano & Company LLC
3 Boulder Avenue
Old Greenwich, CT 06870