Money Matters: are we there yet?

Whew! The tax season rush is over…or is it? Often, we have as many questions from clients after filing as we have before the return is prepared. Therefore, this week, I wanted to answer a couple of the most popular post-filing questions, like: “Just how long do I need to keep my old returns?”

Some clients still have returns from the 1960s and 1970s and others have trouble putting their hands on last year’s copy! The general requirement for retention of completed and filed tax returns is three years. This is three years from the due date of your return or the from the date of filing, if filed late. A safe system is to retain the copy for four years from the year of the return. For example, personal returns for the year 2003 can now be destroyed, since the latest due date was October 15, 2004 plus three years would be October 15, 2007. If you have the storage capacity, keep the most recent four returns together; each year, when you add the newest return, you can shred the oldest.

One important caveat: While you may be able to destroy the return itself, you may want to keep some or all of the documentation, as it may be needed to support transactions in later years. The clearest example of this is investment statements that recap the earnings for the year in question; those statements may also have the purchase information for investments not yet sold, and thus may be needed in future years. It would be advisable to take the time to review the statements and ascertain that no information will be needed in future years prior to running the document through the shredder.

For those of you using a tax preparer or preparation service, you should also take an interest in what is given back to you as your copy. For some, you may only receive the exact same forms and schedules that were filed with the Internal Revenue Service. Others may be given additional schedules and worksheets that were used in the preparation of the return but not filed with the return. In my opinion, it is important you receive these schedules and worksheets for your records since it the tax payer’s responsibility to be able to support the numbers in your return. If you do not receive these worksheets, it could be very difficult for you to respond to the IRS without the assistance of the preparer. Paid preparers are required to keep certain documentation, but I am always more comfortable if the taxpayer also has a copy of these schedules.

There are too many worksheets and schedules to name them all, but some of the more common are Social Security Benefits Worksheet, W-2 Schedule and or Pension and Annuities Schedule, Qualified Dividends and Capital Gain Tax Worksheet, State and Local Taxes, Carryover information for the next year’s return, and Depreciation Detail Schedule. Depending upon the complexity of your return, there may be additional worksheets or schedules which may be helpful in detailing additional numbers used in the return. These might include a schedule consolidating information from K-1’s or passive activities.

The key is to ask your preparer if there were any worksheets or schedules created during the preparation of your return that were not provided to you with your copy of the return. If so, request that copies of these documents be provided.

Finally, it may not be your idea of a good time to review the completed tax return in detail, but it is definitely advisable. If your preparer does not have time to go over the worksheets and schedules right at crunch time, consider making an appointment for a review after the rush is over. Not only will it help with understanding the 2007 return, it could help you prepare a little better for the 2008 season.


Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.

Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.

Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.

© 2008 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

  • Discuss
  • Print

Comments » 0

Be the first to post a comment!