Our TMF Taxes, Roy Lewis, offers this advice on what records to keep each year to help you prepare your tax return:
You should keep a record of every investment-related expense, and anything that will relate to your tax return. The list below isn't comprehensive, but it'll give you a good idea of what you'll need:
- Keep confirmation reports of stock purchases and sales, including the execution prices and trade dates.
- Keep all statements and reports sent to you by your brokerage, mutual fund company, or other investment services company, and from other sources. Perhaps most important are 1099 forms. They show your proceeds from sales of securities (1099-B) and other capital assets; interest income (1099-INT); state tax refunds and other government payments (1099-G); dividend income (1099-DIV); Social Security earnings (1099-SSA); and distributions from IRAs, pensions, and annuities (1099-R).
- Keep records of how you acquired any securities (such as through purchase, inheritance, etc.) and your cost basis.
- If you participate in a dividend reinvestment plan (for stocks and/or mutual funds), keep track of the dividends you receive and how many shares they purchase at what price. This information is necessary to help you calculate the new cost basis for your shares.
- Keep records of contributions to IRAs and other retirement plans. If you make nondeductible contributions to an IRA, make sure you declare these on IRS Form 8606 so that you don't end up paying a second tax on them down the line. You should have year-end account statements as well as receipts for your contributions.
- If one of your securities becomes worthless, keep any documentation relating to that, especially something that includes the date on which it became worthless.
- Keep records relating to interest expense and how you used the loaned funds. This is an advanced topic, but it's an important one. For more information, consult IRS Publications 535 and 550 (available on the Internet at the IRS website).
- Keep all your old sneakers and chicken bones. (Kidding! Just checking to see whether you're still reading.)
- If you plan to deduct travel or meal expenses relating to investment-related travel, keep records of exactly what the trip involved. Know, though, that many investment-related trips are not deductible, such as travel to attend a shareholder meeting or an investment seminar. IRS Publications 463 and 550 will give you more details.
- Keep records of improvements made to your home. These can be added to your home's cost basis, decreasing your gain when you sell the home.
- Keep records of expenses related to selling your home. They can also be deducted from your capital gain.
- If you donate stock, keep records of what you donated, the day of the donation, your cost basis for the shares, and their fair market value. Keep track of cash donations, too.
- If you give stock away, also keep records of what you gave, the day of the gift, your cost basis for the shares, and their fair market value.
- Keep records of expenses for professional help, such as tax preparers and advisors, legal counsel, etc.
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