Documents Which I Need To File My Taxes

Dec 18, 2023 By Triston Martin

You don't even want to think about your taxes, so it's fair to assume that you don't want to think about them. But you shouldn't just toss them away as soon as you've sent in your tax return or pressed the submit button on your electronic forms. There are some papers that you should (and will want to) save for an unlimited period. Getting into the habit of preserving documents that you may need in the future will pay off in the form of tax savings in the future. Below is a summary of such papers and why you should maintain them.

Copies of Returns

The Internal Revenue Service (IRS) only has a certain amount of time to conduct audits of tax returns. This period is typically three years beginning on the day your tax return was submitted. Bear in mind, however, that if the agency has reason to believe that you did not submit a return, this deadline does not apply to you. If you get a notification stating that you never filed, you must demonstrate that this is not the case. You must save a copy of your return and file documentation if you need to support your case. The law mandates that you keep all the documents for a certain time.

You must preserve a registered or certified receipt if you submitted your return using paper. You might even preserve the delivery slip if you used a private delivery service like FedEx or UPS. The Internal Revenue Service will accept an email indicating that your tax return has been accepted for filing from taxpayers who submit their forms electronically. The service provider will send you an email if you file your taxes using tax preparation software (like TurboTax). If you employ a paid preparer, you need to make sure you have confirmation from them that your return was received. The same may be said for refunds of income tax paid to the state. Always keep a copy of the state income tax return and the documentation that the return was filed.

Documents for Your Home

For the majority of individuals, their primary place of residence is also their single most valuable possession. It is also one that, when sold, has the potential to result in a significant tax burden. If you meet certain requirements, the law permits you to keep up to $250,000 of the gain on the sale of your primary house, and you may keep up to $500,000 if you file jointly. However, you will have a gain subject to taxation if you do not satisfy these requirements or if the gain is more than the dollar limit.

Keep your first settlement statement and any other documents connected to the acquisition of your house, in addition to the home renovations you make. You will now be able to add the following to your cost base as a result of this:

  • Fees for the abstract or the abstract of the title
  • Costs associated with the installation of certain utility services
  • Costs associated with legal representation, such as those associated with a title search, sales contract, and deed.
  • Recording costs and fees
  • Charges for surveys
  • Insurance on titles
  • Transfer or stamp taxes

You should keep track of these costs for the duration of the time you own your house, as well as for at least three years after you have filed the tax return reflecting the sale of your property. In most circumstances, the IRS has three years window of opportunity during which it may examine your position.

Acquisition Costs for Property

In the same way that you should maintain documents about house renovations, you should also preserve records regarding other types of property, including stocks, your vacation home, rental property, and artwork. Remember that you need to know the real property cost, including any commissions or other acquisition expenses. Because of this, you can accurately identify any profits when you sell the asset. If you don't, you risk paying more taxes than what would have been expected of you.

Inherited Property

If you were to inherit property, the asset's value would become your tax basis. The property's market price will determine this value on the day the person who bequeathed it to you passes away. This kind of foundation is known as the stepped-up basis. The executor, administrator, or personal representative of the estate may provide you with more details concerning your potential tax responsibility. It is the heirs' responsibility to calculate the value of any estates exempt from the need to submit such returns.

As a consequence of this, this value will serve as the foundation of the property.

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