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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.

Please note that where you live matters! Several states have four years to initiate an audit. You can find out your state’s rules here.

Save These

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!