Tax Tips for Individuals

Here's a quick rundown of suggested record keeping for individuals.

Keep your critical records indefinitely. Other records can safely be discarded after several years.

Keep tax returns (and any records used to prepare them) at least three years after the filing date if you have only W-2 and interest income, preferably six years if your returns are more complex. The IRS has six years to audit you if it suspects you've underreported income by more than 25%.

For investments in real estate, keep records until at least six years after the filing date of the return reporting the sale of that property.

For investments in stocks, bonds, and mutual funds, keep year-end brokerage statements and 1099s and toss interim statements. Retain all brokerage confirmations showing your cost basis. (You can reduce capital gains taxes by selling specific higher-cost shares.)

For your home, keep the settlement statement and records of home improvements. These validate your cost basis for future home sales if they are needed.

Some records should be retained permanently. This applies to IRAs and pensions (Forms 1040, 8606, 5498, and 1099-R), wills, divorce decrees, and most other legal documents.

You don't need an elaborate record keeping system. File tax returns separately by year, and file investment records by broker. For expenses, even an accordion file tabbed by category works wonders. Within a given category, use a separate envelope for each year's receipts and canceled checks, and enclose a tape showing the expense total.

Helpful Links

IRS Website
State of NJ Division of Taxation Website
State of Pennsylvania Department of Revenue - provides detailed information about College Savings Plans (aka 529 Plans)
AARP - information on money, taxes and finances

Note: We receive no remuneration from these sites, and we are not responsible for the privacy practices or the content of such Web sites.

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