Which Tax Records to Keep and Which to Toss

Julia M. Carlson |

Dear Julia,

I just filed my taxes for 2016 and am planning to clean out my old files. What records should I keep, and what can I safely toss? --Buried in stacks of paperwork

Dear Buried in stacks of paperwork,

It is smart to keep your tax returns indefinitely. Old returns can provide important background information in a variety of situations – for example, if you’re applying for a mortgage, applying for disability insurance or trying to figure out your cost basis of investments. Also keep records of your home’s purchase price and major home improvements for three years after you sell your home. It’s a good idea to keep records of stock and mutual fund purchases made in taxable accounts for as long as you hold the investments. The records will come in handy when you sell shares and must report the purchase price, date of purchase and number of shares involved. Additionally, hang on to records of any stock or mutual fund dividends you’ve reinvested so you can avoid paying taxes on them again when you withdraw the money.

As for what to weed out, the IRS generally has up to three years after the due date of your tax return to begin an audit, so you can toss most of your supporting tax documents –such as cancelled checks and receipts – as soon as the three-year period has passed. See IRS Publication 552 Recordkeeping for Individuals for more information about tax records. You can also toss monthly statements from your bank and brokerage firm after you receive your year-end statements; get rid of ATM receipts and bank-deposit slips as soon as you match them up with your monthly statement; and dump pay stubs after seeing that they accord with your W-2 for the year (but you’ll want to save your December pay stub if it shows charitable contributions made via payroll deduction). Dispose of paper copies of your credit card, utility, phone and cable bills as soon as the next month’s bill arrives unless you need them for tax purposes (say, if the expenses can be deducted as self-employed business expenses or if you’re claiming the home-office deduction).

Shred these documents before tossing them so an ID thief doesn’t end up with a goldmine of information about your bank account, credit cards and other personal information.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Email me your questions at financial.feedom@lpl.com or call 541-574-6464. You can also post your question on our Facebook page: https://www.facebook.com/FinancialFreedomWealthManagementGroup