Keeping Tax Records

Income Tax returns and supporting documents – Keep at least four years and preferably six if space is not critical. Once this period has elapsed, the documents can be discarded, but the returns themselves, should be retained indefinitely.

Residential property records – All escrow statements (purchase and sale) plus receipts for improvements should be kept for at least four years after property is sold. Refinance papers should also be retained. Taxable gain on home sales is now cost basis plus $250,000 single or $500,000 married.

Purchase receipts for stocks, bonds, mutual funds – These should also be kept for at least 4 years after the asset is sold. This would include records of stock dividends, splits and reinvested dividends and mutual fund dividends and capital gains. Year end statements.

Depreciation records – For any rental real estate or depreciable business property you own, keep records of the property’s cost, date acquired, and the schedule of depreciation claimed in previous years. This record should be kept until four years after the disposition of the property.

Retirement plan contributions – Records of nondeductible IRA deposits, employer-plan stock purchases, rollovers, conversions to Roth IRAs and Keogh plan deposits should be kept until four years after the plan assets have been terminated or 100% withdrawn.

Personal records – Important papers such as estate and gift tax returns, divorce and property settlement agreements, deeds, title insurance policies, and all trust documents should be kept in a permanent file, or perhaps a safe deposit box.

Miscellaneous papers – All other documents to include bank statements, canceled checks, credit card statements, deposit slips, charitable contribution receipts, and medical bills can be discarded after four years.

IF IN DOUBT--KEEP IT!

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Seven Ways We Can Make Your Tax Life Easier

1. Lower your taxes

2. Save you time in the preparation process

3. Represent you in an audit if needed

4. Find all the deductions legally available to you

5. Answer all your personalized tax questions

6. Explain pros and cons of owning assets to reduce your taxes (e.g., homes, 401(k), IRA)

7. Provide year-round accessibility to your tax preparer

IRS Notice CP-14

Even though most Californians have until October 16, 2023 to pay their taxes, if they already filed their tax return and owe tax, they may receive an IRS Notice CP-14. On June 7th, the IRS issued the following statement:

"The IRS reassures California taxpayers that they continue to have an automatic extension until later this year to file and pay their taxes for those covered by disaster declarations in the state. The current mailings being received by some taxpayers, the IRS Notice CP-14, are for taxpayers who have a balance due, and they are sent out as a legal requirement. While the notice received by taxpayers says they need to pay in 21 days, most California taxpayers have until later this year to pay under the disaster declaration. These letters include a special insert that notes the payment date listed in the letter does not apply to those covered by a disaster declaration, and the disaster dates remain in effect.

The IRS apologizes to taxpayers and tax professionals for any confusion as we continue to review the situation. Taxpayers receiving these letters do not need to call the IRS or their tax professional."

If you received one of these notices, please do not take any action. All of our California clients are covered by the disaster declaration. You will not accrue interest or penalties. We don't know yet if the IRS will automatically waive those fees or if you will have to request abatement. We will send additional instructions when we know more.

Our advice: Plan to pay your taxes a little ahead of October 16th. This way you are sure the payments have cleared before the extended deadline. Only pay the original balance due as shown on your tax return.

If you're unsure whether your IRS notice is related to this issue, please forward our office a copy. You can email it to rodrigo@petixbotte.com or upload it to your Smart Vault folder.