The Tax Shoppe, Inc.

Accounting & Income Tax for individuals and businesses
71 South Old Rand Road, Lake Zurich IL 60047 * Phone 847-438-8668*Fax 847-438-8679
Frequently Asked Questions Table of Contents 1. How long should I keep my tax records? 2. I don’t have the money to pay my taxes by April 15 th . Can I file an extension and pay later? 3. Can I deduct gifts to my children? How long should I keep my tax records? Like most of us, you probably have stacks of tax and financial records piled up, flowing out of shoeboxes and taking up limited closet space. The question you might ask your tax professional is, “How long should I keep these records?” The amount of time that individuals should hold onto certain records depends on many factors- only one of which is the IRS. Insurance adjusters, mortgage companies and others are sometimes too eager for important records to slip through the cracks. When it comes to records, it is probably safest to err on the time side. Here are some guidelines that tend to be very conservative: TAXES: As a general rule, the IRS has three years to audit a return, which, is a safe period of time for taxpayers to keep most tax records. The IRS has six years to act if a taxpayer substantially underreports their income. However, there is no time limit in the case of fraud. Therefore, to play it safe, save returns and supporting documents for six years. HOME: Home expenses can be divided into two categories: repairs (routine plumbing) and improvements (room additions). Once the warranty period expires on repairs, the receipts can be discarded, but save the ones for improvements indefinitely. Improvements add to the tax basis of a home and can reduce capital gain in the future. CHECKS: Tax related checks should be filed with the corresponding return and discarded when it is time to throw out the return. Checks for home improvements should be kept in the ‘home’ file, while checks for major household purchases should be kept with corresponding receipts and warranties. Any checks or statements that are not tax related can be thrown out after one year. INSURANCE: Individuals should talk to their insurance agent about throwing out expired policies, as the liability for prior years may vary. Current policies should be kept for at least 12 months, as should the canceled checks and statements. INVESTMENTS: A good rule of thumb is to retain confirmation slips for as long as a person owns an investment, plus an additional three years. For mutual funds, money market accounts, retirement plans and limited partnerships, individuals should hold onto the original prospectus, the most recent account statements and each year’s cumulative annual statement or Form K-1. Additionally, any documents that show reinvested dividends in taxable accounts should be retained. Old proxy statements, brochures and interim account statements can be thrown away. MISCELLANEOUS: Use common sense when deciding what to do with other documents that do not fall into the above categories. If an old receipt or bill is needed to support a tax deduction or a warranty claim- save it. Otherwise it is just taking up closet space and can be tossed with your next days’ trash. I don’t have the money to pay my taxes by April 15 th . Can I file an extension to pay? An extension of time to file is not an extension to pay. Many people believe that they can file an extension to delay payment of their income taxes. This is really not the case. The primary purpose of the extension is to delay the filing of the paperwork due to lack of information. You must make a proper estimate of your tax. IF you do not make a proper estimate you will be treated as not having filed a valid request extension and you may be charged a penalty for filing late. At least 90% of the final income tax liability is due on April 15 th . In order to file a proper extension, it is mandatory that we have as much information as possible so that the majority of the income tax is paid when the extension is filed. Can I deduct a gift made to my children? You can give $15,000 each year per done without paying gift tax. You cannot deduct gifts made to your children on your federal income tax return. Click below for a printer friendly copy of the Tax Records Retention Schedule: