This is the third and final installment on retaining your tax records. It concludes the October discussion of business and property record retention.
Because the calculation of a casualty and theft loss deduction is determined in part by your basis in the damaged or stolen property, you'll need records to support that basis for six years after you file the return claiming the loss deduction.
If you have inherited property or received a gift of property, you will generally need to know its value at the time of death or the donor’s cost.
If separation or divorce becomes a possibility, be sure you have access to any tax records affecting you that are kept by your spouse. Or better still, make copies of the tax records, since in such situations, relations may become strained and access to the records difficult.
Your records should include a copy of the divorce decree or agreement of separate maintenance, which may be needed to substantiate alimony payments and distinguish them from child support or a property settlement. Copies of all joint returns filed and supporting records are important, since the liability for tax on a joint return is joint and several and a deficiency may be asserted against either spouse. Your records should also include agreements or decrees over custody of children and any agreements as to who is entitled to claim an exemption for them. Retain records of the cost of all jointly-owned property. Also, get records for the cost or other basis of all property your spouse or former spouse transferred to you during your marriage or as a result of the divorce, because your basis in that property is the same as that of your spouse or former spouse.
To safeguard your records against loss from theft, fire or other disaster, you should consider keeping your most important records in a safe deposit box or other safe place outside your home. In addition, consider keeping copies of the most important records in a single, easily accessible location so that you can grab them if you have to leave your home in an emergency.
If, in spite of your precautions, records are lost or destroyed, it may be possible to reconstruct some of them. For example, a paid tax return preparer is required by law to retain, for a period of three years, copies of tax returns or a list of taxpayers for whom returns were prepared. I normally retain copies of clients’ returns for a much longer period than the legally required three years and can furnish a copy if yours is not available. Similarly, other professionals who assisted you in a transaction may retain records relating to the transaction. For example, a stockbroker through whom you bought securities may be able to help you to determine the basis of the securities, and an attorney who represented you in the purchase of your home may retain records relating to the closing. However, because you can never be sure whether those persons will actually have the records you need, the safest course of action is to keep them yourself in as safe a place as possible.
Finally, it is important to note that, depending on your state of residence, the state Statute of Limitations for assessing tax may be longer than the federal statute of three years.
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