The Important Tax Documents You Can't Throw Out

Posted by: Brookside Admin

stack of tax documents

Every year you finish filing your taxes, you've no doubt been left with a stack of documents. Which of these is OK to throw out, and which do you need to keep? Nobody wants to make space in the filing cabinet for unnecessary paperwork, but you also don't want to be caught without the paperwork you need in the event of an audit, or applying for a loan or mortgage. 

Since the IRS has three years from your tax return filing to initiate an audit, you'll need to hold on to the return and all supporting documents until the statute of limitations is up. But what else needs to be kept? Take a look below. 

Tax documents

Even beyond the three year time limit for an IRS audit, you'll want to have certain tax returns and other documents handy. Specifically, any documents showing your income, and tax deductions and credits should be kept. This would include your W-2s and 1099 forms. If you've had eligible withdrawls from health savings accounts or college savings plans, you'll need to keep records of those too. Records of business expenses, and receipts for items you used to claim tax deductions are also necessary to keep. Form 1095 shows that you had eligible health insurance coverage, or qualified for an exemption, and will need a spot in your files. 

While many of the supporting documents not listed here can be tossed after three years, hold onto the actual tax returns themselves. They are often required when applying for a mortage, or in some cases of disability insurance, and if there's an error on your Social Security benefit statement. There are a number of reasons why you might need to look back at a copy of an old return, even if it's just to track down when you began a specific investment. You can always get a archived copy from the IRS, but doing so can be expensive and take weeks. 

Home documents

Just like the stack of documents you're left with when you file your taxes, you'll also have an impressive stack of papers after buying a home. For any property, you need to keep these records for as long as you own it. Additionally, hang on to records of the work and improvements you do around the house. This could include additions and renovations, improvements like new windows, or a new roof, or anything else that would increase the value of your home. 

By having these documents, you can save big on taxes when you sell your home. Up to $500,000 of your home's sale for married couples filing jointly can be excluded from taxes if you meet certain criteria and have the documents to support your improvements. 

Investment documents

As you buy stocks and mutual funds, or invest in other taxable accounts, you'll need to have documentation that clearly defines the purchase and when it was made. Without this information, you won't be able to determine your taxable gain or loss when you sell your investment. Brokers will keep most of these records for ivnestments purchased after 2011, but it's a good idea to keep your own records as well in case you switch brokers, or your contact leaves the company. You'll also want documentation on any reinvested dividends you've already paid taxes on to avoid those funds being taxed twice. 

In the case of inherited investments, take note of the value of those stocks or funds on the day you inherit them. 

Related to these documents is Form 8606, which keeps track of your nondeductible contributions to traditional IRAs. Again, this keeps this money from being taxed twice. You'll want to keep those records for a minimum of three years after you completely withdraw all funds from the account. 

If you have questions about what tax records to keep, consult with the CPAs at Brown Kinion and Company. We have answers to the full range of tax questions, and can even help keep you organized.