How long should I keep financial records? (credit card, pay, sell)

[litlux]

They are taking over my little office space, and now that I have finished another tax report, I am wondering just how long I should hold on to all the documentation. I am in Massachusetts, do not have particularly complicated financials, but oh those credit card and electronic receipts, those cancelled checks etc. Not to mention the tax reports themselves, the lifetime warranty, proof of purchases etc.

Do I really have to buy another filing cabinet? Can I toss anything more than a couple of years old? What if I need them ten years down the road?

Expert advice is appreciated.

[UpperPeninsulaRon]

Originally Posted by litlux

They are taking over my little office space, and now that I have finished another tax report, I am wondering just how long I should hold on to all the documentation.

Go online to the IRS site. Look for Internal Revenue Code Section 6001 - Business Records Retentionn Schedule. There are pages of detail. There are also other sites where you can do a search on records retention and find a lot of information.

Now my disclaimer - All this good stuff should be used as a guide only, but it is a pretty good one for general stuff.

[ontheroad]

I believe it was 7 years, and was recently reduced to five years. But I won't swear to it.

I keep all the receipts that I claimed for each year in separate pocket files, and probably have them back to 7 years, and each year toss one away, except for those receipts that may help me personally on any given issue.

[forest beekeeper]

For an average 'wage-slave' [meaning you get a salary, you have no investments, no business property, and do not own a home], then seven years is fine.

If you own a home, then you need to keep track of it's cost-basis. One day you will either sell or trade that home. To show if you made a taxable profit, you need to have kept records showing it's cost-basis. The purchase price plus all expenses in buying it, plus all major improvements; add up.

If you bought a house for $100k and sold it later for $250k, do you really want to declare $150k taxable profit?

Yes you do get one life-time exclusion of a wind-fall, the idea is that when you are old and grey, and you sell the big family home in order to move into a small one bedroom shack, that huge profit is sheltered.

But what if you start flipping houses? Buy a run-down fixer live in it for five years while you fix everything, sell it, and move into another one. Only by tracking each home's cost-basis can you document how much each home truly cost, so you do not pay big-time taxes with each move.

If you own any form of business that has depreciating property, then you must keep track of the cost-basis of each depreciating item, so long as you have it.

I have apartments, which depreciate, so I must keep all documents to show their cost-basis and depreciation forever, or until seven years after I sell that property.

[jhlcomp]

To answer your question - seven (7) years. However, I find that I have to keep some records up to 10 years and longer because of property, maintenance, cost basis, and other financial records.

[NorthmeetsSouth]

Originally Posted by forest beekeeper

If you own a home, then you need to keep track of it's cost-basis. One day you will either sell or trade that home. To show if you made a taxable profit, you need to have kept records showing it's cost-basis. The purchase price plus all expenses in buying it, plus all major improvements; add up.

If you bought a house for $100k and sold it later for $250k, do you really want to declare $150k taxable profit? .

Actually, if it is your primary residence and you have lived in it for at least two years you don't have to pay any taxes on the gain (up to $250,000 per person) and you can do this over and over. You can move every two years and amass a fortune tax-free. Its the best deal there is!

[forest beekeeper]

Originally Posted by NorthmeetsSouth

Actually, if it is your primary residence and you have lived in it for at least two years you don't have to pay any taxes on the gain (up to $250,000 per person) and you can do this over and over. You can move every two years and amass a fortune tax-free. Its the best deal there is!

I stand corrected.

That has changed, and you are correct.

Very nice, thank you.

Any home acquired after 1997, fits this scheme.

[litlux]

Thanks for the help, everyone. Seven years it is. I also checked the statute of limitations for contracts in my state, it is six years, so seven years of records should be enough should I ever need them.