Taxes are finished; which documents should you keep or pitch?

You’re done with the taxes for another year. Time to dump all the receipts and paperwork associated with preparing the return, you think. Not so fast, cautions the Minnesota Society of Certified Public Accountants. You might need some of that documentation if you get audited; without it, tax benefits that you claimed could be disallowed.
 
“The IRS generally has three years after you file your federal return in to commence an examination of that return,” said Robert Lynn, a MNCPA member with Charles M. Bartley, CPA, Ltd. “The major exceptions are cases where a large portion of income is omitted (a six-year limit can apply then) and cases of willful failure to file returns or purposefully fraudulent returns (where no time limit applies).”
 
In Minnesota, the general time limit is 3 and one-half years, not three years, with extended time limits similar to those in federal tax law.
 
Here’s what Minnesota CPAs recommend for record retention for income tax purposes. What you keep to satisfy loan agreements, for employment in certain industries or government, or for other specialized purposes may be more involved.
 
  • Six to seven years – Tax returns and backup documentation for both income and deductions. Pay special attention to mutual fund and brokerage year-end statements which are often revised. Keep cancelled checks and receipts or acknowledgements to support deductions.
  • One year – Monthly bank records, brokerage statements, pay stubs and other financial data summarized at year-end by a Form W-2, 1099 or other official tax reporting form. Verify that your monthly activity agrees with amounts on those forms.
  • Indefinitely – until at least three years after disposing of a particular property – Employer retirement plan documents (even if you no longer work for the company, as long as you are entitled to benefits); IRA contribution records for any accounts that include “after-tax” amounts; purchase records for stocks, mutual funds or any other securities; documentation of the purchase price and major improvements for your home and any other real estate; and similar documentation for big ticket items such as jewelry, antiques or collectibles. Keeping these records also helps to prove value in the event of loss or damage), both for tax and insurance purposes.

You may like these other stories...

Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...
IRS chief: New rule on the way for tax-exempt groupsIRS Commissioner John Koskinen told the USA Today on Monday that the agency will likely rewrite a proposed rule regulating the political activities of nonprofit groups to...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.