Table of Contents
- How long should I keep
my tax records ?
- I don't have the money to
pay my taxes by April 15th. Can I file an extension and pay later?
- 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:
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 expenses can be
divided in to 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.
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.
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.
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 on to the original
prospectus, the most recent account statement, 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.
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 15th.
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 for an extension, and you may be charged a penalty for filing
late. At least 90% of the final income tax liability is due on
April 15th. 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.
deduct a gift made to my children?
You can give $11,000 each year per donee
without paying gift tax. You cannot deduct gifts made to
your children on your federal income tax return.