Discarding old tax returns

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veindoc
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Discarding old tax returns

Post by veindoc »

I have some fairly old tax returns starting from 2003. The receipts are mostly faded and difficult to read. I used to type the receipts into excel files and give to my accountant. Some years I did not use an accountant and did the calculations by hand. Many of those excel files were stored on hard drives of computers that are decomposing in a landfill somewhere.

I could type the receipts (whatever I can make out) to an excel file and try to do a better job at storing them over the next three to four decades that I am still alive. Or I could just shred it all.

What do you think? Risky?
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lthenderson
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Re: Discarding old tax returns

Post by lthenderson »

Toss after three years old unless you claim a loss and then toss after seven years.
DesertMan
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Re: Discarding old tax returns

Post by DesertMan »

Be mindful of info from your old returns that you need to track such as Roth IRA basis. I needed to early withdraw from my Roth to buy a house but since I started the Roth at Scottrade (no longer exists) I had to bend over backwards to get my basis.
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Kevinaom
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Re: Discarding old tax returns

Post by Kevinaom »

In the age of scanning and $100 1TB hard drives why not just scan them and keep forever. There is no longer an issue with space. Not sure I will ever need them but, for fun, I have scanned returns all the way back to when my wife worked at Woolworths in 1975!
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Watty
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Re: Discarding old tax returns

Post by Watty »

I would at least keep the W2 forms(or images of them) that show your Social Security contributions.

There have been cases where these amounts are missing in your Social Security history and having the W2s would help get that corrected.
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FIREchief
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Re: Discarding old tax returns

Post by FIREchief »

veindoc wrote: Wed May 13, 2020 8:47 pm I have some fairly old tax returns starting from 2003. The receipts are mostly faded and difficult to read.
Are you talking about discarding copies of the returns themselves, or just the supporting receipts?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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grabiner
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Re: Discarding old tax returns

Post by grabiner »

I would suggest keeping the returns; you can discard supporting records once they are beyond the statute of limitations.

In particular, if you move to a different state, you might need records from an old return to file your current return with the new state. For example, I needed information from my 1997 W-2 for my 2011 and 2012 NJ state income tax returns. (What happened is that I contributed to a 403(b) in 1997. NJ does not allow deductions for 403(b) contributions, so when I converted to a Roth IRA in 2010 and paid tax in 2011 and 2012, I needed a record of how much I had contributed to avoid paying NJ tax on it.)
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JBTX
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Re: Discarding old tax returns

Post by JBTX »

after about 7 years I discard all backup and just keep tax forms and W2s.
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TierArtz
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Re: Discarding old tax returns

Post by TierArtz »

I'm an outlier; my collection goes back to 1987. Every once in a while, leafing through them reminds me I was poor and happy :-)
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dratkinson
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Re: Discarding old tax returns

Post by dratkinson »

Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell. But since I'm probably here for the duration, I'll let my heirs get the stepped up cost basis... so, "No worries mate."
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jebmke
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Re: Discarding old tax returns

Post by jebmke »

TierArtz wrote: Wed May 13, 2020 11:30 pm I'm an outlier; my collection goes back to 1987. Every once in a while, leafing through them reminds me I was poor and happy :-)
This is what I do. I have returns back to the 70s. They all fit in two binders.
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Sheepdog
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Re: Discarding old tax returns

Post by Sheepdog »

TierArtz wrote: Wed May 13, 2020 11:30 pm I'm an outlier; my collection goes back to 1987. Every once in a while, leafing through them reminds me I was poor and happy :-)
Me, also, but from 1961. (Ten years or so were inadvertently destroyed at some time.) They only take one large file folder. Supporting documents were discarded, of course. They are interesting.
Time is the school in which we learn, time is the fire in which we burn.~ Delmore Schwartz
Leesbro63
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Re: Discarding old tax returns

Post by Leesbro63 »

dratkinson wrote: Thu May 14, 2020 1:59 am Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell. But since I'm probably here for the duration, I'll let my heirs get the stepped up cost basis... so, "No worries mate."
Aren’t most middle class house sales tax free?
furwut
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Re: Discarding old tax returns

Post by furwut »

Kevinaom wrote: Wed May 13, 2020 10:03 pm In the age of scanning and $100 1TB hard drives why not just scan them and keep forever. There is no longer an issue with space. Not sure I will ever need them but, for fun, I have scanned returns all the way back to when my wife worked at Woolworths in 1975!
+1
Most, if not all, of my tax documents now come as digital anyway. I print a hardcopy as its easier to work with when filing and store them for 3 years as backup to the digital.
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veindoc
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Re: Discarding old tax returns

Post by veindoc »

FIREchief wrote: Wed May 13, 2020 10:36 pm
veindoc wrote: Wed May 13, 2020 8:47 pm I have some fairly old tax returns starting from 2003. The receipts are mostly faded and difficult to read.
Are you talking about discarding copies of the returns themselves, or just the supporting receipts?
Mostly the receipts. My accountant typically gave me the return electronically as well as a hard copy. I kept the receipts. The IRS says it’s okay to discard receipts as long as you have a record. I don’t have a record for many of those years and at this point I think it would take a long time to create the record. If I am asked how I was able to take a $2000 business meal deduction, I wouldn’t be able to justify it without receipts.
pshonore
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Re: Discarding old tax returns

Post by pshonore »

duplicate
Last edited by pshonore on Thu May 14, 2020 8:27 am, edited 1 time in total.
pshonore
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Re: Discarding old tax returns

Post by pshonore »

DesertMan wrote: Wed May 13, 2020 10:00 pm Be mindful of info from your old returns that you need to track such as Roth IRA basis. I needed to early withdraw from my Roth to buy a house but since I started the Roth at Scottrade (no longer exists) I had to bend over backwards to get my basis.
There is no requirement to report a Roth contribution to the IRS so most of the time looking at a tax return won't help. However, keeping broker statements or Form 5498 is great idea. I wouldn't worry about "receipts" after three years. I would keep anything showing income like W2, 1099, etc which might come in handy if SS is missing earnings or to use to increase pension when you retire. (like substitute teaching income from 25 years ago for spouse). (Sometimes you don't know you need that stuff until you need it :happy )
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Harry Livermore
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Re: Discarding old tax returns

Post by Harry Livermore »

I have a banker's box for every year going back to 1993. I have returns only prior to that in a couple of additional boxes. I figure they're with me for life ;)
When my grandmother died, her 4 middle-aged-plus kids (including my mom) were tasked with emptying her house and some of the young adult gen (including me) traveled in to help. I was tasked with photos, movies, and other ephemera. My dad (the CFO/ CPA type) was tasked with sensitive records. I showed up one day and he was burning 50+ years of tax returns in a barrel in the driveway! I had to laugh; that was just my dad being practical and efficient, but at the same time, I had kind of wanted to peruse them a bit. I am a kind of a tax nerd. Just curious what their household looked like in 1946, or 1961, for example. Plus my grandfather was self-employed, as I am, so was curious what that looked like through the years. It assume they used the same CPA for many of those years, the little paper binders all looked the same.
I just smiled and said "hi" to my dad and did not comment further on The Big Burn... once he set his mind to something, there was no changing it ;)
Cheers
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dratkinson
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Re: Discarding old tax returns

Post by dratkinson »

Leesbro63 wrote: Thu May 14, 2020 5:32 am
dratkinson wrote: Thu May 14, 2020 1:59 am Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell. But since I'm probably here for the duration, I'll let my heirs get the stepped up cost basis... so, "No worries mate."
Aren’t most middle class house sales tax free?
You can exempt $250K (single) or $500K (married) of profit on the sale of your home. So if you only live in it a few years before selling, then the exemptions probably do make most home sales tax free.

But it's easy to exceed the exemption if you bought long ago (lower price), the economic success of the area attracting buyers (home price inflation), and becoming a widow/er.

In this case, to reduce tax on the sale, you'll need to document home improvement expenses which add to the home's cost basis.


Or let heirs worry about it.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
Leesbro63
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Re: Discarding old tax returns

Post by Leesbro63 »

dratkinson wrote: Thu May 14, 2020 2:30 pm
Leesbro63 wrote: Thu May 14, 2020 5:32 am
dratkinson wrote: Thu May 14, 2020 1:59 am Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell. But since I'm probably here for the duration, I'll let my heirs get the stepped up cost basis... so, "No worries mate."
Aren’t most middle class house sales tax free?
You can exempt $250K (single) or $500K (married) of profit on the sale of your home. So if you only live in it a few years before selling, then the exemptions probably do make most home sales tax free.

But it's easy to exceed the exemption if you bought long ago (lower price), the economic success of the area attracting buyers (home price inflation), and becoming a widow/er.

In this case, to reduce tax on the sale, you'll need to document home improvement expenses which add to the home's cost basis.


Or let heirs worry about it.
Don't heirs get a stepped up basis?
Bir48die
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Re: Discarding old tax returns

Post by Bir48die »

I am a fan of the seven year club. Just in case. Any more and my file cabinet tips over.
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FIREchief
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Re: Discarding old tax returns

Post by FIREchief »

dratkinson wrote: Thu May 14, 2020 2:30 pm Or let heirs worry about it.
This is an awful strategy.....for the heirs. :D
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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cowdogman
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Re: Discarding old tax returns

Post by cowdogman »

FIREchief wrote: Thu May 14, 2020 7:34 pm
dratkinson wrote: Thu May 14, 2020 2:30 pm Or let heirs worry about it.
This is an awful strategy.....for the heirs. :D
Totally agree with that. "Swedish death cleaning." Look it up. It's a way of life.

I keep everything for three years and then toss it, making sure I have a pdf of the filed return.
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FIREchief
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Re: Discarding old tax returns

Post by FIREchief »

cowdogman wrote: Thu May 14, 2020 7:40 pm
FIREchief wrote: Thu May 14, 2020 7:34 pm
dratkinson wrote: Thu May 14, 2020 2:30 pm Or let heirs worry about it.
This is an awful strategy.....for the heirs. :D
Totally agree with that. "Swedish death cleaning." Look it up. It's a way of life.

I keep everything for three years and then toss it, making sure I have a pdf of the filed return.
This is fantastic. Thanks for posting that. I think I’ve already traveled that road. A bit over a year ago, we downsized from a five bedroom house to a two bedroom apartment. I spent literally six months working hard to get rid of clutter. I’ll estimate that over half of our “stuff” went away. Trash, goodwill, trash, garage sale, trash, Craig’s list, trash, trash, trash.... I actually had to pay for a second garbage bin to barely keep up. Our heirs will be MUCH happier! :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Normchad
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Re: Discarding old tax returns

Post by Normchad »

I'm in the seven year club.

Most years I do my taxes with Turbo Tax, but keep a printed PDF of what gets submitted in my files; along with supporting documents. I shred/destroy all of that at the 7 year mark.

I do still have the turbo tax files, and the electronic PDF copies of the submissions. But I don't bother backing them up or worry about eventually losing them. I trust in the paper; and I destroy all of that at 7 years.

As for cost basis for my house, home repairs, etc, I just don't care. Under current law, I can't envision any scenario in which I would ever pay taxes on a home sale. Same for Roth IRA basis, etc. (In fact, I keep virtually nothing I receive from Vanguard, the 401K, etc. I only keep the most recent annual statement, and that is to serve as a "hint:" to whomever survives me that I had accounts there.....)
LeeInTN
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Re: Discarding old tax returns

Post by LeeInTN »

We have ours back to '71 here in the file cabinet. It's interesting and helps us remember where we were working and what we earned. Kids can dump it all when the time comes.
cherijoh
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Re: Discarding old tax returns

Post by cherijoh »

[quote=Normchad post_id=5252609 time=1589510802 user_id=2481

As for cost basis for my house, home repairs, etc, I just don't care. Under current law, I can't envision any scenario in which I would ever pay taxes on a home sale. Same for Roth IRA basis, etc. (In fact, I keep virtually nothing I receive from Vanguard, the 401K, etc. I only keep the most recent annual statement, and that is to serve as a "hint:" to whomever survives me that I had accounts there.....)
[/quote]

If you are under 59.5 the Roth IRA basis would be important if you want to make any withdrawals.
mptfan
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Re: Discarding old tax returns

Post by mptfan »

dratkinson wrote: Thu May 14, 2020 1:59 am Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell.
I'm sure you already know this, but for those who don't... you do not have to pay capital gains tax on the sale of your primary residence for gains up to $250,000 if you are single and $500,000 if you are married filing jointly.
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dratkinson
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Re: Discarding old tax returns

Post by dratkinson »

Leesbro63 wrote: Thu May 14, 2020 4:04 pm
dratkinson wrote: Thu May 14, 2020 2:30 pm
Leesbro63 wrote: Thu May 14, 2020 5:32 am
dratkinson wrote: Thu May 14, 2020 1:59 am Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell. But since I'm probably here for the duration, I'll let my heirs get the stepped up cost basis... so, "No worries mate."
Aren’t most middle class house sales tax free?
You can exempt $250K (single) or $500K (married) of profit on the sale of your home. So if you only live in it a few years before selling, then the exemptions probably do make most home sales tax free.

But it's easy to exceed the exemption if you bought long ago (lower price), the economic success of the area attracting buyers (home price inflation), and becoming a widow/er.

In this case, to reduce tax on the sale, you'll need to document home improvement expenses which add to the home's cost basis.


Or let heirs worry about it.
Don't heirs get a stepped up basis?
Yes.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
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Kenkat
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Re: Discarding old tax returns

Post by Kenkat »

JBTX wrote: Wed May 13, 2020 10:57 pm after about 7 years I discard all backup and just keep tax forms and W2s.
Me. This ^
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LilyFleur
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Re: Discarding old tax returns

Post by LilyFleur »

dratkinson wrote: Fri May 15, 2020 2:56 pm
Leesbro63 wrote: Thu May 14, 2020 4:04 pm
dratkinson wrote: Thu May 14, 2020 2:30 pm
Leesbro63 wrote: Thu May 14, 2020 5:32 am
dratkinson wrote: Thu May 14, 2020 1:59 am Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell. But since I'm probably here for the duration, I'll let my heirs get the stepped up cost basis... so, "No worries mate."
Aren’t most middle class house sales tax free?
You can exempt $250K (single) or $500K (married) of profit on the sale of your home. So if you only live in it a few years before selling, then the exemptions probably do make most home sales tax free.

But it's easy to exceed the exemption if you bought long ago (lower price), the economic success of the area attracting buyers (home price inflation), and becoming a widow/er.

In this case, to reduce tax on the sale, you'll need to document home improvement expenses which add to the home's cost basis.


Or let heirs worry about it.
Don't heirs get a stepped up basis?
Yes.
I have a file folder called "selling the house," where I keep documentation of the home improvement expenses. Sometimes heirs do have to worry about it if you are still alive, and they are trying to sell your home so you can go into assisted living or skilled nursing care. The heirs get a stepped-up basis only after you are dead.
RudyS
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Re: Discarding old tax returns

Post by RudyS »

I may get the prize: I keep tax returns and supporting info for 7 years. Earlier then that, I keep just the returns. Such fun to look at sometimes. My earliest is when I had a summer job during high school. Only filed to get withholding back. 1954!
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FIREchief
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Re: Discarding old tax returns

Post by FIREchief »

dratkinson wrote: Fri May 15, 2020 2:56 pm
Leesbro63 wrote: Thu May 14, 2020 4:04 pm
dratkinson wrote: Thu May 14, 2020 2:30 pm
Leesbro63 wrote: Thu May 14, 2020 5:32 am
dratkinson wrote: Thu May 14, 2020 1:59 am Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell. But since I'm probably here for the duration, I'll let my heirs get the stepped up cost basis... so, "No worries mate."
Aren’t most middle class house sales tax free?
You can exempt $250K (single) or $500K (married) of profit on the sale of your home. So if you only live in it a few years before selling, then the exemptions probably do make most home sales tax free.

But it's easy to exceed the exemption if you bought long ago (lower price), the economic success of the area attracting buyers (home price inflation), and becoming a widow/er.

In this case, to reduce tax on the sale, you'll need to document home improvement expenses which add to the home's cost basis.


Or let heirs worry about it.
Don't heirs get a stepped up basis?
Yes.
Under current law. Nobody knows what the future holds.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
yakers
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Re: Discarding old tax returns

Post by yakers »

JBTX wrote: Wed May 13, 2020 10:57 pm after about 7 years I discard all backup and just keep tax forms and W2s.
What about 1099s? (I am retired, no W2s) Brokerage statements, SS, IRS/state refund info? How about just saving the TruboTax digital file?
JBTX
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Re: Discarding old tax returns

Post by JBTX »

yakers wrote: Sun May 17, 2020 5:42 pm
JBTX wrote: Wed May 13, 2020 10:57 pm after about 7 years I discard all backup and just keep tax forms and W2s.
What about 1099s? (I am retired, no W2s) Brokerage statements, SS, IRS/state refund info? How about just saving the TruboTax digital file?
There are no hard and fast rules here. I personally would probably save any document that backs up my social security income history.

The only reason I could see saving other such documents is if you had a printed desire to be able reconstruct investment history and I'd probably use statements for that
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grabiner
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Re: Discarding old tax returns

Post by grabiner »

yakers wrote: Sun May 17, 2020 5:42 pm
JBTX wrote: Wed May 13, 2020 10:57 pm after about 7 years I discard all backup and just keep tax forms and W2s.
What about 1099s? (I am retired, no W2s) Brokerage statements, SS, IRS/state refund info? How about just saving the TruboTax digital file?
Brokerage statements need to be saved until the statute of limitations expires on the returns they support. If you bought a stock in 2010, and sold it in 2020, you need the 2010 brokerage statement to support the capital gain you claimed on the 2020 sale, so you need to keep it as long as you keep other supporting documents for the 2020 return.
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Re: Discarding old tax returns

Post by trueblueky »

dratkinson wrote: Thu May 14, 2020 2:30 pm
Leesbro63 wrote: Thu May 14, 2020 5:32 am
dratkinson wrote: Thu May 14, 2020 1:59 am Was recently second-guessing myself for shredding the box containing tax returns and supporting documents from 2000... after I realized that it contained home repair documentation that would increase my home's cost basis if I should sell. But since I'm probably here for the duration, I'll let my heirs get the stepped up cost basis... so, "No worries mate."
Aren’t most middle class house sales tax free?
You can exempt $250K (single) or $500K (married) of profit on the sale of your home. So if you only live in it a few years before selling, then the exemptions probably do make most home sales tax free.

But it's easy to exceed the exemption if you bought long ago (lower price), the economic success of the area attracting buyers (home price inflation), and becoming a widow/er.

In this case, to reduce tax on the sale, you'll need to document home improvement expenses which add to the home's cost basis.


Or let heirs worry about it.
The "becoming a widow/er" part is tricky as it depends on state law and how the property was held. In many cases, the surviving spouse will get stepped up basis on half the house when the first passes.
Leesbro63
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Re: Discarding old tax returns

Post by Leesbro63 »

grabiner wrote: Sun May 17, 2020 8:52 pm
yakers wrote: Sun May 17, 2020 5:42 pm
JBTX wrote: Wed May 13, 2020 10:57 pm after about 7 years I discard all backup and just keep tax forms and W2s.
What about 1099s? (I am retired, no W2s) Brokerage statements, SS, IRS/state refund info? How about just saving the TruboTax digital file?
Brokerage statements need to be saved until the statute of limitations expires on the returns they support. If you bought a stock in 2010, and sold it in 2020, you need the 2010 brokerage statement to support the capital gain you claimed on the 2020 sale, so you need to keep it as long as you keep other supporting documents for the 2020 return.
Isn’t this “less true” going forward due to “covered shares” (brokerage keeps the basis, required by law) ?
trueblueky
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Re: Discarding old tax returns

Post by trueblueky »

Leesbro63 wrote: Mon May 18, 2020 8:35 am
grabiner wrote: Sun May 17, 2020 8:52 pm
yakers wrote: Sun May 17, 2020 5:42 pm
JBTX wrote: Wed May 13, 2020 10:57 pm after about 7 years I discard all backup and just keep tax forms and W2s.
What about 1099s? (I am retired, no W2s) Brokerage statements, SS, IRS/state refund info? How about just saving the TruboTax digital file?
Brokerage statements need to be saved until the statute of limitations expires on the returns they support. If you bought a stock in 2010, and sold it in 2020, you need the 2010 brokerage statement to support the capital gain you claimed on the 2020 sale, so you need to keep it as long as you keep other supporting documents for the 2020 return.
Isn’t this “less true” going forward due to “covered shares” (brokerage keeps the basis, required by law) ?
Yes, assuming you keep the same brokerage.
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grabiner
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Re: Discarding old tax returns

Post by grabiner »

Leesbro63 wrote: Mon May 18, 2020 8:35 am
grabiner wrote: Sun May 17, 2020 8:52 pm
yakers wrote: Sun May 17, 2020 5:42 pm
JBTX wrote: Wed May 13, 2020 10:57 pm after about 7 years I discard all backup and just keep tax forms and W2s.
What about 1099s? (I am retired, no W2s) Brokerage statements, SS, IRS/state refund info? How about just saving the TruboTax digital file?
Brokerage statements need to be saved until the statute of limitations expires on the returns they support. If you bought a stock in 2010, and sold it in 2020, you need the 2010 brokerage statement to support the capital gain you claimed on the 2020 sale, so you need to keep it as long as you keep other supporting documents for the 2020 return.
Isn’t this “less true” going forward due to “covered shares” (brokerage keeps the basis, required by law) ?
Less important, but still true. The IRS could require you to prove the basis yourself, because brokerages do not always get things right (and in some cases, such as shares acquired by exercising an employer stock option, are required to report the wrong number). There have also been reports on the forum of shares being transferred between brokerages and records not moving properly with them; if this happens, you need your own records to support the correct basis.
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Leesbro63
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Re: Discarding old tax returns

Post by Leesbro63 »

grabiner wrote: Mon May 18, 2020 8:43 am
Leesbro63 wrote: Mon May 18, 2020 8:35 am
grabiner wrote: Sun May 17, 2020 8:52 pm
yakers wrote: Sun May 17, 2020 5:42 pm
JBTX wrote: Wed May 13, 2020 10:57 pm after about 7 years I discard all backup and just keep tax forms and W2s.
What about 1099s? (I am retired, no W2s) Brokerage statements, SS, IRS/state refund info? How about just saving the TruboTax digital file?
Brokerage statements need to be saved until the statute of limitations expires on the returns they support. If you bought a stock in 2010, and sold it in 2020, you need the 2010 brokerage statement to support the capital gain you claimed on the 2020 sale, so you need to keep it as long as you keep other supporting documents for the 2020 return.
Isn’t this “less true” going forward due to “covered shares” (brokerage keeps the basis, required by law) ?
Less important, but still true. The IRS could require you to prove the basis yourself, because brokerages do not always get things right (and in some cases, such as shares acquired by exercising an employer stock option, are required to report the wrong number). There have also been reports on the forum of shares being transferred between brokerages and records not moving properly with them; if this happens, you need your own records to support the correct basis.
Have there been any reports of the IRS challenging brokerage "covered shares" numbers and requiring further documentation?
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boomer
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Re: Discarding old tax returns

Post by boomer »

LilyFleur wrote: Fri May 15, 2020 5:31 pm
dratkinson wrote: Fri May 15, 2020 2:56 pm
Leesbro63 wrote: Thu May 14, 2020 4:04 pm
dratkinson wrote: Thu May 14, 2020 2:30 pm
Leesbro63 wrote: Thu May 14, 2020 5:32 am

Aren’t most middle class house sales tax free?
You can exempt $250K (single) or $500K (married) of profit on the sale of your home. So if you only live in it a few years before selling, then the exemptions probably do make most home sales tax free.

But it's easy to exceed the exemption if you bought long ago (lower price), the economic success of the area attracting buyers (home price inflation), and becoming a widow/er.

In this case, to reduce tax on the sale, you'll need to document home improvement expenses which add to the home's cost basis.


Or let heirs worry about it.
Don't heirs get a stepped up basis?
Yes.
I have a file folder called "selling the house," where I keep documentation of the home improvement expenses. Sometimes heirs do have to worry about it if you are still alive, and they are trying to sell your home so you can go into assisted living or skilled nursing care. The heirs get a stepped-up basis only after you are dead.
We sold our primary house last year, for under $500,000. Joint married couple. Had keep careful records and had an entire box of receipts because we had finished the basement and built an accessory building. Didn't need them. As long as the sale is under $500K on a primary home, you are covered. Over $500K for married joint, keep records and your receipts.
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FIREchief
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Re: Discarding old tax returns

Post by FIREchief »

Leesbro63 wrote: Mon May 18, 2020 10:10 am Have there been any reports of the IRS challenging brokerage "covered shares" numbers and requiring further documentation?
That's an excellent question. I suspect the answer is "no."
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Grasshopper
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Re: Discarding old tax returns

Post by Grasshopper »

Keeping my fingers crossed but I had some drip shares gifted to me from 20 years ago, between Computershare and Vanguard basis got screwed up. I only had the drip amount and date found historical prices and came up with my own spreadsheet of non covered long term basis, long term covered, and short term covered. Went with my numbers on Schedule D in TurboTax sent my spreadsheet into the IRS never heard anything more. :beer
Van
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Re: Discarding old tax returns

Post by Van »

TierArtz wrote: Wed May 13, 2020 11:30 pm I'm an outlier; my collection goes back to 1987. Every once in a while, leafing through them reminds me I was poor and happy :-)
Same for me except being poor made me unhappy.
Church Lady
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Re: Discarding old tax returns

Post by Church Lady »

Decades ago, I was advised to keep tax returns forever, although after a few years you could throw away the instruction booklet.

The tax booklet no one reads says the statute of limitations is seven years, but no limitation in the case of fraud. Since you could be accused of fraud without actually being guilty of fraud, you might want to keep that stuff forever.

Today, in 2020, I would certainly keep any tax return that involves form 8606 or other IRA or 401K documentation forever.

Some speak of 'scanning' and 'digital'. I know nothing of that craft :D , but if space is an issue, you might want to look into it.
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.
scrabbler1
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Re: Discarding old tax returns

Post by scrabbler1 »

I keep the full tax folder for 5 years. Before that, I keep only the return and supporting documents and any homemade spreadsheets I printed out, about half the total volume.
J295
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Re: Discarding old tax returns

Post by J295 »

Of course, these days the paper we have is minimal as most things are electronic. Having said that though, whatever paper we do have is shredded when it is seven years old.

Indeed you can make a hypothetical about how having something older than seven years could someday be valuable and helpful… And you can also make a hypothetical that having the ability to track down something more than seven years old is harmful and a hassle.
illumination
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Re: Discarding old tax returns

Post by illumination »

veindoc wrote: Wed May 13, 2020 8:47 pm
I could type the receipts (whatever I can make out) to an excel file and try to do a better job at storing them over the next three to four decades that I am still alive. Or I could just shred it all.
What could typed out receipts in an Excel file be used for? Is it just for your own analysis? Anything like that cold easily be fabricated if it was ever a dispute. I would throw out all physical receipts from anything that old, assuming this is pretty trivial anyway.

In terms of an audit, the last I heard, the law is pretty clear that after 6 years the IRS is SOL in almost everything except maybe some foreign earnings you didn't report.
https://www.forbes.com/sites/robertwood ... 9e86767ba6

The things I would keep "forever" would be documentation tied to long term investments you still hold, like your cost basis in say a land investment and ongoing receipts. Also maybe health care expenditures if you plan to draw those down an HSA later in life. I'm sure there's other examples, but my guess is most people keep way too much.

Data storage is so cheap now , and there are some great apps that scan a page almost perfectly (Scannable is one I use) that you can save lot of this "just in case" and it costs almost nothing. Buy a $10 thumb drive and have your whole life on it.
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FIREchief
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Re: Discarding old tax returns

Post by FIREchief »

Church Lady wrote: Mon May 18, 2020 4:09 pm The tax booklet no one reads says the statute of limitations is seven years, but no limitation in the case of fraud. Since you could be accused of fraud without actually being guilty of fraud, you might want to keep that stuff forever.
FYI, this is what the 2019 1040 instructions state:
How Long Should
Records Be Kept?
Keep a copy of your tax return, worksheets
you used, and records of all items
appearing on it (such as Forms W-2 and
1099) until the statute of limitations runs
out for that return. Usually, this is 3
years from the date the return was due or
filed or 2 years from the date the tax was
paid, whichever is later. You should
keep some records longer. For example,
keep property records (including those
on your home) as long as they are needed
to figure the basis of the original or
replacement property. For more details,
see chapter 1 of Pub. 17.
Did it used to be seven years?
Last edited by FIREchief on Mon May 18, 2020 9:02 pm, edited 1 time in total.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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