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Keeping Tax Documents

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By Selena Maranjian (TMF Selena)
April 9, 2002

Q. What documents do I need to keep after I've filed my return, and how long do I need to hang on to them?

A. TMF Taxes offers this advice:

Unless fraud, evasion, or a substantial understatement of income is involved in your tax return, you'll usually only need to keep the underlying documentation for about three years.

Keep your copy of the tax return forever. You never know when it'll come in handy. Remember that, in many cases, the IRS destroys the original returns after four or five years. It's always best to have your copy to fall back on.

Cancelled checks, deposit statements, and receipts should generally be kept for at least three years -- seven years is best. Note, though, that if a receipt is for something that won't appear on your tax return for several years (such as home improvements), then you'll want to hang on to it for at least three to seven years beyond the time it appears on your return.

Stock trade confirmation receipts and statements should be kept for at least three years after both ends of the transaction (the purchase and the sale). Again, keeping them five or seven years is even better.

Keep proof of improvements to your property until at least three years (preferably seven) after the sale of the property to prove your basis in the property when it is sold. (Certain improvements add to the cost basis of your property, thus reducing any capital gains you may have when you sell.) This is true for rental property, investment property, and even your own personal residence.

Remember when you put that new roof on your rental property in 1987? Well, you'd better still have that receipt -- and keep it with receipts for the other improvements to that property for at least three years after you sell it. In cases like this, it is very possible that you'll have records 10, 20, 25 years old or older. It's not uncommon, if you're retaining your records appropriately.

Keep escrow closing documents a minimum of three years after the property is sold. You'll want to retain both the purchase escrow and sales escrow statements. Much like your stock confirmation statements, you'll need to show both sides of the transaction and be able to prove your improvements. And, as always, keeping the records for five or seven years past the sale is an even better bet.

Learn more in our Tax Center. Also useful are the IRS website and The Motley Fool Tax Guide 2002.

If you have any thoughts or opinions on this topic, share it with others on our discussion board for Ask the Fool or on our Tax Strategies board.

This question and answer is adapted from The Motley Fool Money Guide: Answers to Your Questions About Saving, Spending and Investing. For answers to this and 499 other common money questions, check it out -- it's a handy resource.