Our very own TMFTaxes, Roy Lewis, offers lots of advice on what records to keep each year to help you prepare your tax return. In particular, he'll tell you that you should keep a record of every investment-related expense, plus anything else that will relate to your tax return. The list below isn't comprehensive, but it will give you an idea of what you'll need to keep on file.
- Keep confirmation reports of stock purchases and sales, including the execution prices and trade dates.
- Keep all statements and reports from 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, and so on -- 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 non-deductible 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 situation, 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 at the IRS website.
- Keep all of your old sneakers and chicken bones. (Kidding! Just checking to see if 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 tax help, such as tax preparers and advisors, legal counsel, and the like.
Learn more in our Tax Center. Also useful, again, is the IRS website. And for lots of tips on how to get your life in order, financially and otherwise, including how to lop off several hundred dollars from your monthly or yearly expenses, try our brand-new newsletter service, GreenLight. It's full of personal-finance guidance and practical advice, and we think you'll find that it will more than pay for itself in short order.
