Taxes are finished; which documents should you keep or pitch?

Think again before you throw away all the receipts and paperwork associated with preparing your tax return. You might need some of that documentation if you get audited; without it, tax benefits that you claimed could be disallowed.

You should keep your tax returns and backup documentation for both income and deductions for six to seven years, but pay special attention to mutual fund and brokerage year-end statements which are often revised. Also, keep cancelled checks and receipts or acknowledgements to support deductions.

Monthly bank records, brokerage statements, pay stubs and other financial data summarized at year-end by a Form W-2, 1099 or other official tax reporting form can be thrown away after a year. Verify that your monthly activity agrees with amounts on those forms.

There is also some paperwork you should keep indefinitely or at least three years after disposingof a particular property. All employer retirement plan documents that you are still entitled to; IRA contribution records for any accounts that include “after-tax” amounts; purchase records for stocks, mutual funds or any other securities; documentation of the purchase price and major improvements for your home, and any other real estate; and similar documentation for big ticket items, such as jewelry, antiques or collectibles. Keeping these records also helps to prove value in the event of loss or damage, both for tax and insurance purposes.

To read more about the documents you should keep after completing your taxes, visit Accounting Web.