What documents you need to save
With computers we now have more paper, reports, notes, memos and the like than ever before. The question is what to save and what to destroy (not throw away if it has your personal information on it).
First, we urge all income tax returns be saved. If you filed a form 709, U.S. Gift Tax Return, that should be saved with your estate planning documents. If you inherited something (i.e. from a parent or sibling) the fair market value of the item is important for income tax purposes. Saving at least part of the Form 706, U.S. Estate Tax Return or proof of value at the death can be a big help.
Most income tax returns are “closed” three years after filing. IRS can’t audit, the taxpayer can’t amend. The Statute of Limitations is six years after filing if you left off 25 percent or more of the total income. If you never filed (or committed fraud) the return is always open for IRS audit.
If you have some investment (stock, real estate, etc.) that you purchased many years ago, it’s important to save the documents that show your cost (or tax basis) until at least three years after it’s sold. We suggest four years after sale should be saved.
If you own a business, it would be good to save the business records for a longer period so the potential buyer can understand the business and the price you ask to sell it. Most buyers want to see at least five years of records and financial statements and the supporting information.
Some items may have monthly reports and then at the end of the year an annual report that has all the transactions for the year. In that case, if the annual report seems to be complete, maybe the monthly reports could be shredded, but save the annual report.
If a promissory note is involved, you probably should keep all the records on the payments from the beginning to at least four years after it’s paid in full.
Monthly household bills for utilities, etc. might be destroyed just a few years later unless they support a claim for Office in Home expenses or other income tax deductions.
Credit card statements can be important if some of the items support or show income tax deductions, especially for a business. We suggest those be saved at least four years.
It’s OK to start a box for each year to hold the supporting information. Then after four years you can take the box to be shredded. That way you may only have four years of boxes on hand at any one time.
Did you hear? “If your train is on the wrong track, every station you come to is the wrong station.” — Bernard Malamud.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.