Tax Returns: Keep Some For a Long Time
A few days ago I wrote about when folks can get rid of old tax returns and how to go about it.
But there are some tax records that should be retained for a long time, and in some cases, indefinitely. Here's the rule: you should keep records of the cost of assets that can be sold or transferred for the entire time you hold the asset. This is referred to as the life-of-the-asset holding period.
For example, keep a file including the HUD-1 Settlement Statement and related documents for the purchase of a home. Also, keep any receipts for capital improvements made to a home or property.
Keep all confirmations for investment purchases, stock grants, etc. When you receive the confirmation statement for the sale, you can attach them together to report the purchase and sale on your tax return.
Always keep in mind that the IRS has an unlimited period of limitations to request information and returns for lack of filing or when fraud is suspected. If this is your situation, you have issues other than good record keeping to worry about.
If you've lost or discarded a tax return and later need a copy, not to worry. Copies of tax returns and all attachments (including form W-2) are generally available for seven years from the IRS and can be obtained by filing Form 4506, Request for Copy or Transcript of Tax Form. There is a $57 fee for each return requested.
Keeping It Organized and Safe
Consider a filing system organized by account and category. I like to file the statements and records as they come in rather than letting them pile up for awhile. The important thing is to use a system that works for you.
Close out your checkbook register at year-end and start a new one beginning January 1st. Keep the past years register with your tax records for that year.
Use a multi-file box for your tax return and related statements. These come preset for this purpose. Remember to store these records in a safe, dry place (away from the furnace or the sump pump).
Keep insurance policies, wills/trusts, birth/marriage certificates, passports and other hard to replace documents in a fireproof safe box. Also, keep a back-up copy of the financial records on your computer here. You can get a fireproof box from your local department store (Wal-Mart and Home Depot has them) for $50 to $300, depending on their size. Keep this in a safe place in your home.
Only use a safe deposit box at your bank to store valuable and irreplaceable documents and items. But there are certain items that should not be stored here, your will being one of them. That's because a bank will seal off access to a safe deposit box until the court approves an order appointing a representative to oversee the opening.
Ray Martin
View all articles by Ray Martin on CBS MoneyWatch»
Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.
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