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Keeping financial records – how long?

Radio Transcript, 2 minutes 38 seconds, for use during week of Jan. 7.

Description: Penny, Susan, and Ira talk about recordkeeping on tax returns, gifts, and your home.

Announcer: invest Wisely comes to you from Iowa State University Extension through a grant from the Investor Protection Trust, providing investor education on the web at: investorprotection.org.

Susan: Penny we’ve talked about the importance of keeping good records, so that I can prove my basis should I sell an asset. What about other records?  For example, how long should I keep a copy of my income tax returns?

Penny: Some people suggest you keep tax returns for three years, but keeping them longer is not a bad idea. You should also keep copies of all your 1099s, state tax refund documents, and any other information you used to prepare your return.

Susan: What about gifts?

Penny: You can give a gift up to $12,000 per year to any number of individuals with no tax consequences. If you give more than $12,000--or $24,000 to a married couple--you’ll need to file a gift tax return. Those returns should be kept forever.

Ira: I keep all the documents that I get from my investment adviser and from my mutual fund companies. Do I need to keep those documents forever as well or is there a time when it’s safe to throw them?

Penny: When you get the statements, check to make sure they’re accurate.  You can throw your monthly statements at the end of each year after you’ve received your year-end statement.

Susan: What about records on my house?  What information is important to keep?

Penny: Currently, you’re allowed to exclude the first $500,000--or $250,000 for a single person--of capital gain on the sale of your principal residence.  This is true regardless of your age or how many homes you’ve sold in the past.

Ira: Would this apply even if I previously took a ‘once in a lifetime’ tax exclusion on another home sale?

Penny: Yes.  However, it’s good to remember that even though the provision to allow you to exclude capital gains is in place now, tax laws can change.  That’s why it’s a good idea to keep good records on your home, including the purchase price, money spent on improvements, and any other factors that might affect its basis.

Ira: Thank you, Penny.  As always, you’ve been very helpful.

Penny: You’re welcome.  And remember, for more information visit the ISU Extension website at extension.iastate.edu and look for ‘Invest Wisely.’

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Updated December 31, 2007