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Hall, Kistler & Company Accounting Bulletin: Tax Documents

With the holidays approaching, taxes may be the last thing on your mind. But at Hall, Kistler & Company, our team of CPAs is always looking ahead to tax season.  Hall Kistler’s accountants have some advice for when you begin filing your returns in a few months on what you should keep and what you can discard to make your record keeping as simple as possible.

First, you should keep essential records that can protect you if the IRS decides to conduct an audit in the future. Some documents will help you collect a future refund or assist you with filing next year. Below is a rundown of the documents you should keep and how long you should retain them.

AUDITS AND AMENDED RETURNS
You should generally keep records supporting items claimed on your individual tax return until the statute of limitations runs out. Typically, that is three years from the due date of the return or the date you filed, whichever is later. This is because the IRS can audit your returns for a minimum of three years. You can also file an amended return on Form 1040X during this time period if you missed a deduction, overlooked a credit, or misreported income.
But you are not necessarily safe from an audit after three years have passed. There are a couple of key exceptions to this general rule:

1. The statute of limitations increases to six years if the IRS has reason to believe you understated your income by 25 percent or more; and
2. There is no time limit if the IRS suspects fraud or you do not file a tax return.

VARIOUS RETENTION REQUIREMENTS
Keeping records for three years is the general rule. There are exceptions for certain records. Perhaps not surprisingly, there is no easy answer to the question of how long you should keep specific papers. The IRS does not require you to keep records in any particular way. But here are some basic guidelines to follow.

Completed Tax Returns. Some tax advisers recommend that you hold onto copies of completed, filed returns for your lifetime. The reason is so you can prove to the IRS that you actually filed if there's ever a question about it. Even if you don't keep the returns indefinitely, you should hang onto them for at least six years after they are due or filed, whichever is later.
Backup Records. Any written evidence that supports figures on your tax return, such as receipts, expense logs, bank notices, and sales records, should generally be kept for at least three years.

Exceptions. There are times when you may be entitled to more than the usual three years to file an amended return. For instance, you have up to seven years to take deductions for bad debts or worthless securities, so don't toss out records that could result in refund claims for those items.

Real Estate Records. Keep real estate records for as long as you own the property, plus three years after you sell (or otherwise dispose of) it and report the transaction on your tax return. Throughout ownership of the property, keep records of the purchase, as well as receipts for home improvements, insurance claims, and documents relating to refinancing. These may help prove your adjusted basis in the home, which is needed to calculate the taxable gain at the time of sale, or to support calculations for rental property or home office deductions.

Securities. To accurately report taxable events involving stocks and bonds, you must maintain detailed records of purchases and sales. These records should include dates, quantities, prices, dividend reinvestment, and investment expenses, such as broker fees. Keep these records for as long as you own the investments, plus the statute of limitations on the relevant tax returns.

Individual Retirement Accounts (IRAs). The IRS requires you to keep copies of Forms 8606, 5498, and 1099-R until all the money is withdrawn from your IRA accounts. Now that Roth IRAs have been added into the mix for some retirement savers, it's more important than ever to hold onto all IRA records pertaining to contributions and withdrawals in case you're ever questioned. If an account is closed, treat IRA records with the same rules as securities. Don't dispose of any ownership documentation until the statute of limitations expires.

Issues Affecting More Than One Year. Records that support figures affecting multiple years, such as carryovers of charitable deductions, net operating loss carrybacks or carryforwards, or casualty losses, should be saved until the deductions no longer have an effect, plus seven years, according to IRS instructions.

These general recordkeeping guidelines are for individual tax purposes. Businesses, insurance companies, and creditors may have other requirements.  

Last Word: One critical step to take when cleaning out financial documents is to shred them thoroughly before you toss them out.

If you have any questions about your record keeping, you can contact your tax advisor or you can contact Hall, Kistler & Company’s team of accountants in Canton, Ohio by calling (330) 453-7633.

About Hall, Kistler & Company
Hall, Kistler & Company LLP is a full service certified public accounting and consulting firm based in downtown Canton, Ohio. Founded in 1941, Hall, Kistler & Company employs over 20 professionals; led by five partners, making us one of the largest locally owned CPA firms in the Canton area. Our team of professionals advise businesses, individuals and nonprofit organizations on ways to optimize cash flow, minimize tax liability, comply with fiscal and regulatory requirements, assist owners in acquisitions, dispositions and succession planning. We specialize in oil & gas, business valuations, manufacturing and distribution, health care, not-for-profits, compilations, inventory control, personal financial planning, succession planning, estate & gift planning, corporate and individual taxation.

With membership in BKR International, a leading global association of independent accounting and business advisory firms representing the expertise of more than 135 member firms in 300 offices in over 70 countries around the world, you will enjoy access to the best practices and resources in the accounting industry.