Which records are important?
Records of income received.
Expense items, especially work-related.
Home improvements, sales, and refinances (for homes with the profit potential of $250,000 or more).
Investment purchases and sales information.
The documents for inherited property.
Charitable contributions (records vary with the
Interest and taxes paid.
Records on nondeductible IRA contributions.
How long should records be kept?
Just how long you should keep records is partly a matter of judgment and a combination of state and federal statutes of limitations. Federal tax returns can be audited for up to three years after filing (six years if underreported income is involved). It is a good idea to keep most records for six years after the return filing date.
There are some records worth keeping permanently, partly due to long-term needs and partly because they take up very little room. Consider permanently retaining a copy of each year's tax return as well as records substantiating net operating loss carryforwards and long-term capital loss carryforwards. Contracts, real estate buy/sell records, and records of property improvements should be retained for seven years after the property is sold.
If you are in business, your record requirements are more extensive. Please call us; we will be happy to assist you with a system of record retention for your business.