It’s that time of year again… TAX TIME! Sorry, hope that reality check didn’t ruin your day. But look at the bright side… this month is the most perfect time to clean out all you old paper files! Aren’t you excited?!?
Don’t worry, I even cringe at the thought of having to update all my filing cabinets and sort through old archive paper boxes in my garage. The biggest question that my clients ask me when they dare to spring clean their files is this: “What do I keep and what can I let go of?”
WHAT TO KEEP
First off, let’s talk about the most important papers that you should keep indefinitely. Marriage certificates, birth and death records, social security cards and other personal documentation should never be thrown away and should be kept in a very private and secure place. Health records for each family member is also important to keep permanently. It’s also a good idea to hold onto estate planning documents (most recent version) and your retirement plan annual reports. While it’s not necessary, I even recommend keeping all your tax returns. The return itself is usually fairly small – it’s the supporting documents that take up most of the room. Speaking of, let’s go over how long you should keep those…
It has been common practice to keep all supporting tax documents for at least 7 years. That rule seems to have recently changed. According to the IRS website (click here for more info), you only need to keep your supporting documents for 4 years unless you fall under one of these four categories:
- You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
- You file a fraudulent return; keep records indefinitely.
- You do not file a return; keep records indefinitely.
- You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
Just remember, the Internal Revenue Service can “revisit” your filing if it believes there’s been fraud, or that income has been substantially under-reported. Therefore, throw away at your own risk.
So what falls under the category of supporting tax documentation? Here’s a list:
- Bank deposit slips
- Bank statements
- Brokerage statements (year end reports)
- Charitable contribution documentation
- Credit card statements
- IRA nondeductible contributions
- Receipts or logs pertaining to tax records
You should also hang onto any receipts for major home improvements… keep these until you sell your house. You may want to show potential buyers how much you’ve spent, and you can use certain home-improvement expenses to lower any tax bill you might have on your home-sale profits.
WHAT TO PURGE
As you clean out your paper piles, it’s a good idea to make two purge piles – one that is to go into recycling and another to be shredded. Don’t want to sit in front of your shredder for hours on end? You’re in luck! Luck of the Irish, that is! This Saturday on St. Patty’s Day, March 17th, the Lynnwood Storables is having their Annual Free Community Shred Event. Click here for more details.
The most important papers that you should be shredding are all your old financial statements, including anything with account numbers or social security numbers. Here are some things that you should definitely shred:
- Preapproved credit offers and applications
- Expired debit and credit cards
- Credit card statements and receipts (older than 4 years old)
- Bank account statements and canceled checks (older than 4 years old)
- Utility and phone bills
- Investment account statements
- Paycheck stubs
- Old Insurance policy information and claims
If you have any questions or if there is anything I didn’t cover, please don’t hesitate to call or e-mail me. Paper filing can be very overwhelming! If you need any help, don’t hesitate to ask!