Your Portfolio: Make sure to manage your tax records

The Federal income tax system is a complicated organization, but it’s one we all have to contend with. Between payroll deductions, estimated taxes, exemptions, deductions, credits and more, it’s easy to get yourself confused. The problem with confusion, in this case, is that it can sometimes lead to fear — fear that you won’t have everything accounted for properly. If the IRS should ever come knocking, you want to be prepared to answer for the years of taxes you’ve settled.

While we don’t have space here to go into detail on every tax-related document, the following information should give you an idea of some of the paperwork you may want to retain. The length of time you need to keep a document depends on the action, expense or event the document records. In general, you need to keep records that support income or a deduction on a tax return until the statute of limitations for that return runs out. This statute provides that you generally have three years after the date the return was filed to make changes to the information and file an amended return, but there are exceptions. Here are just some of the forms you may recognize from tax season:

W-2 – If you receive a paycheck, you’re familiar with this document, which reports your salary and the federal, state and local income taxes withheld. It also shows how much you contributed to your employer’s retirement plan, if applicable. In case some of your earnings are missing when you apply for benefits, keep all your W-2s until you start drawing Social Security.

Form 1099-INT – This form reports interest earned on investments during the year, from sources such as certificates of deposit (CDs), bank deposits, taxable bonds and money market funds. You are required to report interest earned even if you don’t receive a 1099-INT. Generally, you should keep these for three years after the filing date of your return.

Form 1099-DIV – This form reports any dividends you received during the year, from investments such as stocks and stock mutual funds. Even if you reinvest dividends into additional shares, you must report those dividends and pay taxes on them. In general, you should keep these for three years, but each time dividends are reinvested, it creates a new lot of shares with a new cost basis. For this reason, you should keep records of all dividend reinvestments as long as you own the shares. Without this information, you won’t be able to accurately figure your gain or loss when you sell the shares.

Form 1098 ¬– For homeowners, this document reports interest paid on your home mortgage, and savvy taxpayers know that means a deduction. You should be fine if you keep these on file for three years.

In addition to the numbered forms you’re familiar with, there are other documents you may want to file away for safekeeping. Some additional guidelines include:*

Retain records related to an asset for as long as you own that asset plus at least three years following its disposition.

If you acquired securities in an exchange for other securities — for example in a merger, spinoff, splitoff, refunding or conversion — hold on to the records related to the old securities for as long as you own the new securities plus at least three years following the disposition of those securities.

If you are carrying forward a capital loss, hang on to all of your tax returns until the loss is completely deducted plus three years following the filing of the return that includes the deduction of the last portion of the capital loss carryover. Remember this rule for your children’s accounts too.


A.G. Edwards does not render legal, accounting or tax preparation advice. Consult your tax and legal advisors for questions regarding your specific situation.


This article by Chris Facka, Financial Consultant and CERTIFIED FINANCIAL PLANNER at A.G. Edwards. A.G. Edwards is a division of Wachovia Securities, LLC. Member SIPC. Chris can be reached at 642-6000

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

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