What Financial Records to Keep Each Year & for How Long

Adriana Velez | May 12, 2015 Home & Garden

woman on laptopCongratulations, you finally finished your taxes! So ... which tax documents should you keep and which can you toss? And how long do you need to hold onto them? Here's what you should keep every year.

We got some advice from tax attorney Robert Hoffman and CPA Micah Fraim to find out what tax-related documents we should keep after we've filed. He boiled it down to anything you'd need to defend an audit. "For individual taxpayers who earn a regular paycheck, this usually means evidence of deductions taken on Schedule A." Read on to find out what that means, specifically.

What do you usually do with your paperwork after you file your taxes?

financial recordkeeping 

Image via Yeko Photo Studio/Shutterstock and © qvist/Shutterstock

 

 

 

  • Receipts From Employee Expenses

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    "We have found that the most commonly audited expenses are charitable donations and unreimbursed employee expenses," says Hoffman. "When trying to prove a deduction for employee expenses, you need to prove three things: that the charge was incurred, paid by you, and not reimbursed/reimbursable by your employer."

    So keep receipts, bank statements, or invoices for employee expenses you weren't reimbursed for.   

  • Employee Agreements About Expenses

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    Hoffman adds that along with those expense statements, "you will want to retain a copy of your employment agreement. The IRS will require you to prove that the expenses you claimed were not included in your employer’s reimbursement policy."

  • Receipts for Donated Goods

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    "Most of our clients donate old clothes, toys, etc. to charitable organizations such as Goodwill or Salvation Army without knowing how to retain proper records," Hoffman says.

    "Any donation worth more than $250 must be documented with a receipt," Hoffman says, and that often means an itemized list of what you donated. "Donations worth more than $5,000 must be supported with a qualified appraisal estimating the value of the donated property," he adds.

  • Receipts for Charitable Donations

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    For future reference: Avoid making cash donations if you want to count them as tax deductions. "We advise our clients to donate via check, so that your bank will retain a record of any cancelled checks," Hoffman says. "Having third-party documentation of the gift makes it easy to prove deductions during an audit."

    More from The Stir: Most Ridiculous Tax Write-Offs of All Time

  • Medical Bills

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    Keep receipts and statements for any out-of-pocket medical or dental expenses.

  • Mortgage Interest Statements

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    If you're deducting mortgage interest, you'll want to keep statements of that interest.

  • Income Tax Statements

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    Keep your income tax statements, like 1099s and W2s.

  • Property Tax Statements

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    You'll also want to hold onto any property tax statements.

    More from The Stir: Expecting a Tax Return? How to Decide Whether to Save or Splurge

  • Hold Onto These Records for 3-7 Years

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    Okay, so how long should you hold onto all these documents? It depends on your risk. 

    "The IRS has three years to audit you under normal circumstances or six years if they believe you have under reported your income by 25% or more," says Fraim. "Adding the extra year for buffer and IRS discrepancies in timing as always a good rule of thumb."

  • Keep Electronic Records

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    Does that mean you should keep boxes of paper stashed away in your attic? "The best practice would be to back up all documentation electronically," Fraim says, "and have Carbonite or an equivalent backup service as a backup to the backup." 

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