The tax agency in your state might have more time to audit your state tax return than the IRS has to audit your federal return. State Record Retention RequirementsÄon't forget to check your state's tax record retention recommendations, too. (See IRS Publication 523 (opens in new tab) for more details.) Similar rules apply for any rental properties you own save records relating to your basis for at least three years after selling the property. You can add the cost of significant home improvements to the basis, which will help reduce your tax liability. But if you sell the house before then or if your gains are larger, then you'll need to have your home-purchase records to establish your basis. Most people don't have to pay taxes on home-sale profits-singles can exclude up to $250,000 in gains and joint filers can exclude up to $500,000 if they've lived in the house for two of the five years prior to the sale. Keep home-purchase documents and receipts for home improvements for three years after you've sold the home. ![]() For gifted property, your basis is generally the same as the donor's basis. The basis of inherited property is generally the property's fair market value on the date of the decedent's death. If you inherit property or receive it as a gift, make sure you keep documents and records that help you establish the property's basis for at least three years after you dispose of the property. (If you inherit stocks or funds, keep records of the value on the day the original owner died to help calculate the basis when you sell the investment.) But we recommend maintaining your own records in case you switch brokers. Brokers must report the cost basis of stock purchased in 2011 or later, and of mutual funds and exchange-traded funds purchased in 2012 or later. ![]() You'll need to report the purchase date and price when you file your taxes for the year they're sold to establish your cost basis, which will determine your taxable gains or loss when you sell the investment. Keep investing records showing purchases in a taxable account (such as transaction records for stock, bond, mutual fund and other investment purchases) for up to three years after you sell the investments. For these reasons, save any records or documents related to foreign taxes paid for at least 10 years. You also have 10 years to correct a previously claimed foreign tax credit. If you claimed a deduction for a given year, you can change your mind within 10 years and claim a credit by filing an amended return. tax return-and you get to decide if you want a credit or deduction. If you paid taxes to a foreign government, you may be entitled to a credit or deduction on your U.S. That's how much time you have to claim a bad debt deduction or a loss from worthless securities. But make sure you keep related records and documents for at least seven years. If that's the case, you might be able to write off any your worthless securities or bad debts. Sometimes your stock picks don't turn out so well, or you loan money to your deadbeat brother-in-law who can't pay you back. So, save any records related to such income until the six-year window is closed. If you don't report $5,000 or more of income attributable to foreign financial assets, the IRS also has six years from the date you filed the return time to assess tax on that income. To be on the safe side, they should generally keep their 1099s, their receipts and other records of business expenses for at least six years. For self-employed people, who may receive multiple 1099s reporting business income from a variety of sources, it can be easy to miss one or overlook reporting some income. The IRS has up to six years to initiate an audit if you've neglected to report at least 25% of your income. (Note, however, that people who don't itemize can deduct up to $300 for cash donations to charity made in 2021.) Six Years For example, if you're not deducting charitable contributions, then you don't need to keep donation receipts or cancelled checks for tax purposes. ![]() If, like most people, you don't itemize deductions on Schedule A (opens in new tab), you might not need to hold onto as many documents. ![]()
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