The 2014 tax season is finally over! Congratulations for making it through! Now is the time to put up your feet, relax, catch up on your favorite shows, and spend time with your family. Sure, your office desk may be buried in two inches of IRS forms, receipts, pay stubs, and W-2s, but you’ll just push that to the back of your mind until next April, right?
Not necessarily. You can easily sort through your heavily papered desk with these tips on what you can and should not toss after tax season is over.
1. Your actual tax returns. Get your past and present tax returns laminated, bound, framed, gold-plated, or whatever it takes for you to keep those documents for up to seven years (note: there is no statute of limitations on fraudulent returns; the IRS recommends keeping them forever). Better yet, scan all of these documents and keep them in a “digital archive” on your back-up hard drive, and file the originals in a safe place. You’ll need the information later in life when you apply for a mortgage or disability insurance, or when you need an idea of the value of your assets.
2. Form 8606. If you make nondeductible contributions to a Roth IRA, hang on to evidence of this. That way, when you begin to take withdrawals from your IRA, you won’t have to pay taxes on the distributions again.
3. Gift tax returns and Form 706. These returns will become invaluable upon your death. Keep a record of all of these returns with your important paperwork, like will and trust documents.
4. Records of home improvements and original home purchase cost. If you sell a home that you’ve lived in for less than 2 of the last 5 years, or if you earned a profit of more than $250,000 (if single) or $500,000 (if married and filing jointly), you can be taxed on the income received from the sale. Keep records of any major home improvements you made, as these can be added to the value of the house and therefore reduce your taxable gain.
NOTE: When throwing away personal documents, be sure to dispose of them properly by using a document shredder. You can also seek document destruction services with BBB.org.
1. Old paystubs. Once you’ve checked and confirmed these with your W-2 for the year, paystubs can be tossed.
2. Credit card receipts. Toss these, unless they reflect expenses made for work purposes, in which case they should be relinquished to your employer in order to be reimbursed, or kept if you deducted unreimbursed employee expenses.
3. Phone and utility bills. If you’ve hung on to any of these bills for the past year, know that you can generally toss these once the following month’s bill has arrived. The exception would be if you use your phone or utilities for self-employed business expenses, in which case they are deductible, and subject to review in case of an audit.
“When in doubt, hang on to it” can definitely still be your rule of thumb when sorting through your old papers, but knowing what should and should not be thrown out can reduce your stress or worry.