April: Spring Cleaning versus Record Keeping
It takes a lot of time and effort to collect, organize and store important records, especially those required by the IRS for tax purposes. Once taxes are filed, it’s tempting to purge those piles of data and documents from our homes and offices – but be wise about it.
Keep in mind that our THG Client Portal provides real value when it comes to managing the demanding task of record keeping. In case you’ve forgotten – or have not yet used our client portal – we can electronically store your tax and account records for seven (7) years and your permanent documents, such as trusts, wills, etc., indefinitely.
Here are a few rules-of-thumb to keep in mind as you move from “tax time” to “spring cleaning time”, starting with The General Three-Year Rule.
The statute of limitations for assessing additional taxes is generally three years from the date that a return is filed but there are some exceptions such as:
- Securities loss: A claimed loss from a worthless security results in a limitation period of seven years.
- Unreported income: An unreported amount that is more than 25% of the gross income actually reported on your return results in a limitation period of six years.
- Fraud: A fraudulent return, or failure to file a return, results in an open-ended time period.
The “Three Year Rule” (and exceptions) aside, here are some important documents you should keep at hand:
- Capital gains and losses: Never discard records related to securities transactions until they are sold. And remember that if you are audited, producing these records is imperative.
- Home expenses: Receipts for improvements should be kept until the home is sold.
- Tax returns. Keep copies of your tax returns handy. Did you know that you cannot rely on the IRS to have a copy of your old returns, so keeping the most current seven years of returns on hand is a good idea.
- Bank records, employment records, brokerage statements: Maintain your W-2s, 1099s, bank and brokerage statements for three years in case of an audit.
- Double-check your social security: Maintain records for Social Security purposes. You will need W-2 or Schedule C records to prove that the correct income is recorded to your account.
Are you enjoying all the benefits of our client portal?
Contact us to discuss your situation if you’re not certain. We want to make sure that your “spring cleaning” is done accurately and well.
