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Sorting Out Your Tax Documents: Toss or Keep?




Even though dealing with tax season is probably an old hat by now, there are some things about taxes that continue to perplex. Specifically, what should you do with tax documents and the supporting paperwork?


Your aunt says to throw it all away after 2 years. Your banker friend says to save everything for 7 years. If you take this information into account, you won’t get caught without a receipt you need or using up precious space to store papers you don’t require.


So what should you do? Are there reasons you should save tax documents forever?


Use this handy guide to help you determine which tax-related documents to save and which to toss:


Save tax returns

Many financial experts recommend never throwing away tax returns. They might come in handy in the future when you need to reflect back to determine the cost basis of prior investment figures, if you wish to apply for loans, or if you want to file for disability insurance.


If you don’t have room to store tax returns, scan them and keep them in computer files. Be sure to back them up, though, in case your computer crashes.


File stock and mutual fund confirmations for safe-keeping

Because you’ll likely someday sell your stock market purchases, you’ll need the original information about your purchase of those items, such as when you bought them, how much you paid, and how many shares you bought.

As long as you have the stock, you’ll need those confirmations. So save - don’t toss!


Toss monthly statements from all financial institutions if you receive year-end reports

Be careful with this one, though, because some major brokerage firms recently stopped issuing year-end summaries and expect their customers to save monthly reports for tax time. Check with your specific brokerage. Scan and save if you prefer instead of all the paperwork.


Toss salary paystubs after the year’s end

If you saved paystubs all year, it’s okay to get rid of them after you’re sure your W-2 reflects properly the amount you earned. The only exception here is if, for some reason, you need the final paystub of the year (to claim how much money was deducted from your pay all year for donations to charities).


Before you dispose of copies of household bills, ensure you don’t need them

If you have a home office, you’ll likely need your utility bills and other types of receipts to claim the home-office deduction on your tax return.

Electric/gas bills, internet connection fees, homeowners’ insurance, HOA maintenance fees, and others may help you get a hefty tax return if you have a home office.


Save credit card bills

Although some financial experts recommend tossing them, many reasons to save them exist. For example, these days, credit card companies often insure anything you’ve purchased with the cards. Scan them if you don’t want all the paperwork.


Expect exceptions to these rules

If you have room, it’s wise to save any important records. For instance, in 2010, the government offered the Longtime Home Buyers’ Tax Credit to home purchasers who could furnish proof they’d resided in their previous home for 5 of the prior 8 years.


Sound easy?


It wasn’t, as many applied for and didn’t receive this credit. Why? Many homebuyers were unable to prove they’d resided in their home for 5 years to the satisfaction of the Internal Revenue Service (IRS).


One couple that did receive the credit got it because they had saved their monthly utility bills for the home and sent copies with their application for the tax credit. So, saving their utility bills ultimately helped them receive a huge credit from the IRS.


Navigating Tax Strategy, Mastering Financial Freedom

In the realm of tax preparation, being proactive is the key to financial empowerment. At CQ Consulting Services, we invite you to break free from reactive habits and embrace a strategic approach to taxes. Let's work together to ensure you're not merely preparing for tax season but actively strategizing for year-round savings. With our expertise, you won't just navigate taxes, you'll master them.


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