Keep these records for taxes


(MoneyWatch) A few days ago I wrote about how long to keep old tax returns and when it is safe to throw them away.

And if you've lost or discarded a tax return and later need a copy, don't worry: Copies of tax returns, all attachments, and form W-2 are generally available for seven years from the IRS and can be obtained by filing Form 4506, Request for Copy or Transcript of Tax Form. You also have to fork over a $57 fee for each return requested.

But there are some tax records that should be retained for a long time, and in some cases, indefinitely.

For example, you should keep records of the cost of assets that can be sold or transferred for the entire time you hold the asset. This is referred to as the life-of-the-asset holding period.

Also, keep all of the documents related to the purchase of your home or other real estate. This includes the HUD-1 Settlement Statement and related documents. Also, keep all records and receipts for improvements to your home or other property.

Also, if you refinanced a mortgage, keep a copy of the mortgage note and the HUD-1 Settlement Statement. You will need to refer to the mortgage note to verify that adjustments to your interest rate are made correctly if you have an adjustable rate mortgage. The settlement statement includes any interest and points paid that may be deductible.

Keep all confirmations for investment purchases, stock grants, etc. so that when you receive the confirmation statement for the sale, you can attach them together to report the purchase and sale on your tax return.

Always keep in mind that the IRS has an unlimited period of limitations to request information for years where you did not file a tax return and to audit tax returns when fraud is suspected. But if this is your situation, you have issues other than good record keeping to be concerned about.

Keep documents organized and safe

Consider a filing system organized by account and category. I like to file the statements and records as they come in rather than letting them pile up for awhile. The important thing is to use a process that works for you.

Use a multi-file box for your tax return and related statements. These come preset for this purpose. Remember to store these records in a safe, dry place - not in your basement next to the furnace or the sump pump.

Keep insurance policies, wills/trusts, birth/marriage certificates, passports and other hard-to-replace documents in a fireproof safe box. Also, keep a back-up copy of the financial records on your computer. You can get a fireproof box from your local department store or big box store for $50 to $250, depending on their size. Keep this in a safe place in your home.

Only use a safe deposit box at your bank to store valuable and irreplaceable documents and items. But there are certain items that should not be stored here, your will being one of them. That's because a bank will seal off access to a safe deposit box until the court approves an order appointing a representative to oversee the opening.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.