To Keep or Not To Keep?

A good record-keeping system is one element of an effective tax plan. But once your tax return is completed, what do you do with that mountain of papers?

The guide below will help you fit that mountain into a small filing cabinet by detailing which documents are essential, and the length of time they should be saved. However, if you have a reason for keeping a particular record or document, by all means do so!

Copy of your tax return. It’s a good idea to keep these indefinitely. Even though the IRS can generally go back only three years to question your return, there are certain situations in which they go back farther. Also, your return contains data about investments, business transactions, and other information that may be useful at some future date. The IRS also recommends keeping copies of your W-2 forms until you have reached retirement age in case there is a discrepancy with your Social Security records.

Receipts for charitable giving. Keep receipts for charitable contributions for a minimum of seven years in case you have to substantiate these deductions to the IRS. Be sure to review IRS Publication 526 for guidance on what kinds of documentation you need for different kinds and levels of donations. You should also keep a log of expenses incurred while doing charitable work such as your mileage, parking fees, tolls, bus fare, or the cost of cleaning a uniform. H&R Block’s DeductionPro software can help you track your charitable giving from cash and mileage to noncash property donations. The program also assigns fair-market values to your noncash donations which helps you to maximize your tax savings.

Bank statements and cancelled checks. If they have no long-term tax significance you only need to keep these for a year. But, if a particular check or statement reflects an important payment such as taxes, the purchase of property, home improvement or a special contract, it’s a good idea to file it with the papers pertaining to the transaction and keep it indefinitely.

Receipts from ATMs or credit and debit cards. Hold on to these long enough to verify the accuracy of the transaction on your monthly statement. If a receipt corresponds to a major purchase or deposit, it’s a good idea to file it away with the papers pertaining to that specific transaction.

Insurance and medical records. Save all papers regarding insurance claims and medical expenses, including medical insurance that was not subsidized by your employer. Qualified medical expenses that are more than 7.5 percent of your adjusted gross income may be deductible on your tax return. If you claim the deduction, keep these records for a minimum of seven years. Even if you don’t claim a deduction, it’s a good idea to keep records pertaining to surgery, hospital visits, etc. Unfortunately, there are often insurance and payment disputes years after a medical situation has occurred.

Gambling records. This can be a simple log listing the type of gambling activity, how much money you won or lost, the address of the establishment, and the date and names of others who were present with you Also be sure to keep any Forms W-2G you receive as they will show any taxes withheld from your winnings. Keep this information for a minimum of seven years.

Documentation of theft or loss. If you suffered a theft or casualty loss, keep all documents pertaining to the incident, including ownership records, insurance appraisals and claims, police reports, receipts for replacement property, court records, and anything else that establishes the scope of the loss. Keep this information for a minimum of seven years.

Investment records. Records reporting the purchase and sale of stocks, bonds and other investments should be kept as long you own the investment and for up to seven years after you sell it. Also, be sure to keep all records pertaining to dividend and interest payments. Note: fees associated with a safe deposit box rental are tax deductible if you use it to store investment-related materials that generate taxable income.

Brochures, advertisements, prospectuses. A great deal of extra paper comes in the mail with your bank and brokerage statements. Some of it may be important for your investment records, such as information about a stock spin-off and basis adjustment. But a great deal of it is merely informational, such as an advertisement for additional bank services. If you don’t need this information, throw it out! If you’re not sure, ask your tax professional.