All Things Financial Planning Blog

What Records Do I Need to Keep


I was working on my spring housecleaning the other day ( I know I was supposed to do this three months ago but tax season got in the way!) and came across an article that dealt with record retention suggestions from a few years ago. Since life has changed a little in the financial world, I decided this would be a great topic for a blog.

The IRS has added a few new forms in the recent past to our tax returns and we have all aged a few more years bringing us closer to when we will be retired and looking to withdraw money from our retirement accounts. All this raises issues about what records we should be keeping and what records we can get rid of.

High on the list of why to get rid of records we do not need anymore is the protection of our identity from people lurking to steal our identities. So any records that we can get rid of that have information about our name, social security number, address, etc., should be destroyed by shredding ourselves or going to a place that does shredding. Be sure that the shredder you use is a cross-cut shredder (old-style straight cut shredders leave too much opportunity to figure out the sensitive information on your documents). Should you be thinking of doing this, review what you are thinking of shredding to be sure that the following types of records will not be needed in the future:

  1. Records supporting what you have reported on your tax returns for the past 6 years should be retained in case of an audit. While the audit period for the IRS is normally 3 years, they do have the ability to go back 6 years if they believe that there is a reason to suspect underreporting of income or over claiming of deductions.
  2. If you have an investment portfolio that contains purchases from years ago, you should be sure to keep the records that show each purchase to support your cost basis. This would be especially true if you were purchasing stocks or mutual funds and reinvesting the periodic dividends and capital gains automatically. I have had clients who bought a major utility 20 years ago and reinvested the dividends every quarter for twenty years, had numerous stock splits and is sitting with over 4,000 shares today. There are numerous blocks of cost basis to choose from if they were to sell today, ranging from $1.50 to $35.00 per share. This gives them both gains and losses if they should sell to choose from but the burden is on them to prove it when they do sell and to report this information to the broker so the broker can report it on the brokerage 1099 statement at year end.
  3. Perhaps you invested in IRAs each year and did not take a tax deduction on your tax return in the year of the contribution, maybe 20 years ago. Each of these contributions are considered “cost basis” that will reduce the amount of taxable income when you take a withdrawal from the IRA in retirement. Again, it is your responsibility to document what your cost basis is when you report that on Form 8606 in your tax return. This is an area where you are the only one who knows what you did at tax time. So I would suggest you keep the Form 1040 for that year as well as the Form 5498 for that year. Form 5498 confirms that you made a contribution to the IRA or the Roth IRA and the Form 1040 shows whether you took a tax deduction for it that year. You may recall that back in 1998 when the Roth IRA was introduced, you had the opportunity to do a conversion of IRAs to Roth IRA and pay the tax over 4 years. This same opportunity was available in 2010 to convert and pay the tax in 2011 and 2012. I had a few clients who did the conversion in 1998 and they actually exercised their option to recharacterize the conversion back to an IRA which resulted in them doing the conversion again in 2010. Fortunately the clients had the above referenced documents to show this so that we could then reduce the converted amount of taxable income by their cost basis. Without that documentation being available, I would not have been able to file their tax return and show the cost basis as being not taxable.
  4. If you are one who contributes household items to charities to take a tax deduction, you may want to make a habit of keeping the purchase receipts of major items you buy to help support the value you will assign to the articles when you donate them to a charity. I am not suggesting that you can claim the price you paid but it does help to support how expensive the items are should the IRS want to question whether you buy expensive or inexpensive items that would then influence the value being claimed.
  5. If you operate a business and have equipment to claim on the return for depreciation, including the use of your car, you will want to keep the documents that show what you paid for the item and when it was purchased. These records will be needed for at least three years after the last year you have claimed it on a tax return. I would also note that if the item is no longer used in the business but you are still using it for personal reasons, you have a disposition of a business asset to reflect in the return when that occurs. An example may be the computer that your child is now using that you claimed 100% depreciation on your Schedule C for the past three years. It has a value to be reflected on your Schedule C as a sale of an asset. Or maybe it is the car that you used in business that is now used by your child to get to school.

There may be other documents you need to keep but this will get you started at relieving the clutter in your life. Enjoy the opportunity to open up some space around you.


Francis St. Onge, CFP®
Total Financial Planning, LLC
Brighton, MI

Author: Francis St. Onge, CFP®

Francis St.Onge has been a CFP® since 1991 and an EA since 2003 providing financial planning and tax planning services to a broad range of middle and upper income clients in the Brighton, Michigan, and surrounding areas through Total Financial Planning, LLC. Prior to the year 2000, Frank was employed in the health care industry for over 30 years as a Chief Financial Officer, Corporate Director of Internal Audit, and Regional Compliance Officer for several large multi-health care facilities. Frank has a bachelor degree in Accounting from Northern Illinois University in DeKalb, Illinois, and is also a Certified Fraud Examiner. He has been active in his professional organizations over the years, including being President of the Eastern Michigan Chapter of the Health Care Financial Management Association, President of the Detroit Chapter of the Institute of Internal Auditors, and chairman of numerous committees. Currently, he is serving as President of the Michigan Chapter of the National Association of Enrolled Agents and was its Treasurer prior to that. He has published numerous articles and made presentations at many seminars related to the organizations he has been a member of over the years. He has been an Adjunct Professor at Oakland University and Oakland Community College.

5 thoughts on “What Records Do I Need to Keep

  1. When can we expect another post?

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  5. Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out a form 5498, I found a blank form here This site PDFfiller also has some tutorials how to fill it out and a few related tax forms that you might find useful.

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