How To Purge Your Tax Files

I finished preparing my 2012 federal tax return, and I'd like to clean out my files. How long do I need to keep old tax records, investment statements, and other personal documents?

This is a great time to get rid of outdated tax and personal financial records and begin organizing your files for 2014. Review your year-end statements to make sure they accurately reflect the monthly statements you received from your bank, broker and other financial institutions. Shred the monthly statements, but keep the year-end statements in your tax files for at least three years after the due date of your return. That's how long the IRS generally has to audit your tax return, unless you've significantly understated your income.

What Documents To Keep

You should keep records of your stock and fund purchases, however, for as long as you hold those investments. When you ultimately sell the shares, you'll need evidence of the price paid (your tax basis) and the date of purchase to settle up with the IRS. (Starting in 2011, brokers must track the tax basis of new stock purchases for you, and starting in 2012, fund companies must do the same for new fund-share purchases. But for investments made before then, you're still on your own.) Also hold on to year-end statements that show reinvested dividends and capital-gains distributions, so you don't pay taxes on the same money twice when you sell the shares.

It's a good time to declutter and purge the rest of your financial files as well. You should keep tax returns for at least six years, but you can toss the supporting records, such as canceled checks and old receipts, three years after the due date of your return. Any year that you make nondeductible contributions to a traditional IRA, you must file Form 8606. Hold on to those forms until you withdraw all the money from your IRA so you can document that a portion of each distribution is tax-free.

Read more at http://www.kiplinger.com/article/taxes/T056-C000-S002-purge-your-tax-files.html#rYq2eDli5eY1zJ8g.99 or call (978)636-0301 with any questions you may have about purging our old tax records.

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