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Record Keeping Guidelines

We were recently asked the question: "How long should taxpayers keep old tax returns, documentation, and receipts?"

The IRS has published many requirements that we would like to summarize as briefly as possible.

  • We recommend that you keep the previous 6 years returns, documentation, and receipts. Some people keep a copy of the tax returns older than six years and just destroy the documentation and receipts that are seven years and older. The IRS can generally audit the previous 3 years tax returns. However, there are numerous circumstances in which having these additional three years would be to your advantage, especially if you own your own business.

  • MOST IMPORTANTLY, Documentation that will support a deduction or establish a tax basis on a future tax return MUST BE KEPT until the asset is sold. This refers to your principal residence, mutual funds and stocks, and investments in partnerships just to name a few. Typically, this means the information must be retained longer than 6 years.

  • As a service to you, our client, we will be happy to maintain a copy of this long-term information in our files. In order for us to have complete documentation, would you please send us the following information:

PRINCIPAL RESIDENCE:

  • We would like a copy of the closing statement from the purchase of your home. The closing statement is typically on two long pages.

  • We would like a copy of the tax return from the year that you sold your last principal residence. A Form 2119, Sale of a Principal Residence should be included in that year's tax return. A lag in time between the sale of one residence and the purchase of another sometimes requires the Form 2119 to be filed in two (usually consecutive) years. If so, a copy of both returns is necessary.

  • We would like a list of any home improvements and the cost to you. Receipts or other forms of documentation are necessary for the IRS but a list at this time is all that we need. A home improvement is anything done that extends the life of your home (a new roof, siding) or improves the value of your home (landscaping, planting of trees).

MUTUAL FUNDS AND OTHER SECURITY INFORMATION:

  • ALL (from your first purchase to now) year-end statements from the companies which recap your purchases and sales of shares during each year.

  • Purchase confirmations from the brokerage houses.

The IRS requires the above documentation to support the net gain reported on the sale of your assets. The advantage of accumulating this information now is better documentation and therefore, a larger purchase cost and basis for your investments which will result in a lower tax liability in the future.

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SETFS, LLC
Katherine Nixon
CPA, CPC, PMP

Office: (281) 370-6622

   Cell: (936) 870-8256

Katherine Nixon is a licensed CPA and financial advisor. Securities offered through J.W. Cole Financial, Inc.

Member FINRA/SIPC www.finra.org and www.sipc.org Advisory services offered through J.W. Cole Advisors, Inc.
J.W. Cole Financial, Inc., J.W. Cole Advisors, Inc., and SETFS, LLC are unaffiliated entities. Advisors must be properly registered in the state where you live in order to conduct securities related business with you. A response to your request for information might be delayed in order to assure our compliance with this regulation. No information provided on this site is intended as a solicitation to buy or sell any security. The investments and services mentioned may not be available in every state. No security will be offered or sold to any person, in any state in which such offer, solicitation, purchase, or sale would be unlawful under securities laws of such jurisdictions.

 

Katherine Nixon is a licensed CPA, not a CPA firm, yet does tax return preparation.

Office : 281-370-6622

Cell: 936-870-8256

​© 2017 by Katherine Nixon. All Rights Reserved