11 Tax-Related Documents You Should Never Throw Away
The most important documents of your life aren’t always easy to retrieve from their original source or even online. It’s up to you to stash your documents for safe keeping.
Nothing in life can be certain except death and taxes, at least that’s what Benjamin Franklin thought back in 1789 when he was referring to the constitution. What is also certain is that other life events like marriage, divorce, and adoption affect your taxes. That’s why Jill Gonzalez, a tax analyst for Wallet Hub says, “All documents related to life events such as marriage, a death of a spouse, divorce, alimony payments, adoption papers, or custody agreements should be saved.”
The IRS doesn’t need proof you are married or divorced, but if your name changes, you will. “If your marital status has changed during the last tax year, and you want to file your taxes using your new last name, you’ll first need to go to a Social Security office and change it,” says Gonzalez. Per the Social Security Administration, you’ll need one of the following documents to prove your legal name: a marriage document, divorce degree, certificate of naturalization showing a new name, or court order for a name change. Find out what you need to know about taxes after big life changes.
Death of a spouse
To protect against identity theft, send the IRS a copy of the death certificate. “The IRS will flag the account to reflect that the person is deceased,” says Gonzalez. “A copy of the death certificate may also be sent with the decedent’s final tax return.”
Divorce and custody agreements
If you or your ex-spouse plan on claiming any children as exemptions, your divorce and custody agreements should be handy come tax filing time. “If the divorce agreement doesn’t specify who gets to claim the kids, the exemption goes to the custodial parent. In the case of joint custody, the parent who has held the child longer during the tax year will be able to claim the exemption,” says Gonzalez. Watch out for these 15 other money mistakes to avoid during a divorce.
The IRS offers tax credits to adoptive parents, so be sure to have adoption-related financial records, legal agreements, and other paperwork handy come April 15. “The IRS may ask for any financial records related to the adoption such as invoices, bank statements or copies of written checks,” says Gonzalez. Here are 32 more things your tax accountant wishes you knew.
If you’ve been audited by the IRS, hang on to the paperwork because believe it or not, you’re not exempt from being audited again. “I had a client who was audited one year and the audited again,” says Anthony E. Parent, Esq., founding partner of Parent & Parent LLP. He recommends keeping tax audit papers forever, because the IRS may not save your previous audit on file.
Property and home documents
In the short-term, the papers related to the sale of your home come in handy if you’re a first-time home buyer as there may be some tax credits. Plus, you can take a deduction for state property taxes paid. In the long term, anything property or home improvement related should be kept handy for audits, or if you make a home improvement that significantly increases the value of your home.
Foreign income or investments
“Foreign bank and financial accounts have to be saved for five years minimum,” says Parent. Note that it’s a pretty stiff penalty of up to 50 percent of the account’s value if you don’t report the income, so it’s prudent you have proof by holding onto the documents. Don’t miss these 22 things tax experts wish you knew about the new tax law.
Bank records and receipts
“The IRS relies on bank records, so it is important for them to have access to them if you’re ever put on the spot with an audit,” says Parent. Bank records and receipts are classified as “supporting documents,” that is, they provide documented proof of income and expenses for the IRS. Parent also suggests hanging on to medical records and copies of expenses in the event of an audit.