After filing your tax return, dealing with paperwork like W-2s and 1099s probably isn’t high on your list of priorities. However, it’s crucial not to hastily discard these documents once you’ve completed your taxes. Let’s explore the essential documents you should retain for future reference, which can lead to potential tax savings down the road.
Ensuring you keep certain paperwork can have long-term benefits, so let’s delve into the specific documents you should hold onto and why they are important.
Copies of Returns
The IRS typically has a three-year window to audit tax returns from the filing date. This timeframe remains valid unless the agency suspects you failed to file a return. It’s vital to retain copies of your returns and proof of filing to substantiate your tax position, whether filed electronically or by mail.
- If you filed by mail, keep a certified receipt or delivery confirmation.
- For electronic filers, save the acceptance email or acknowledgment from your tax software provider.
Similar rules apply to state income tax returns – retain a copy indefinitely along with proof of filing.
Documents for Your Home
Your primary residence serves as a significant asset, potentially triggering tax obligations upon sale. Maximizing the basis of your home can help minimize taxable gains, which involves documenting home improvements and initial purchase-related expenses.
- Retain records of expenses like legal fees, title insurance, and utility installations.
Continue to keep track of these expenses throughout homeownership and for at least three years post-sale for IRS scrutiny.
Acquisition Costs for Property
In addition to home-related records, maintain documentation related to other properties like stocks or real estate to calculate accurate gains upon sale and avoid unnecessary tax liabilities.
Similar to home records, safeguard property acquisition documents for the duration of ownership and three years after selling the property.
Inherited Property
When inheriting property, the stepped-up basis is crucial, based on the property’s value at the deceased person’s date of death. Understanding tax implications and securing proper evaluations of inherited assets is essential for future tax reporting.
Retain inheritance details for as long as you possess the property and an additional three-year post-sale period for potential IRS inquiries.
The Bottom Line
Maintaining accurate records may seem arduous, but having an organized system in place is key. Consider digitizing important documents and storing backups in secure locations like the cloud to prevent data loss.
Keeping both physical and electronic copies of critical records is a wise precaution to safeguard against unexpected events. Ensuring your financial documentation is in order can save you significant hassle in the future.