All of the "tax time" discussion this month has gotten me wondering about and interested in knowing how long should I keep my files and important papers so I am ready if and when our helpful government decides it's time to look up my panties?
I mean really, are there rules and/or a statute of limitations?
If not, then what are the best recommendations?
I think everyone, down to the very last Baby Boomer, is confused on this issue and has a tendency to save every last scrap of paper in case of a possible future reprisal (think financial colonescopy) by "Big Brother."
Well, in the hopes of reducing your paper stockpile and assisting you in getting together an organized and functional filing system for next year's tax time, let's take a look at what the experts have to say on this subject.
So pull the shredding machine over to your desk, fill up your coffee and let's start with the easy stuff first.
To help avoid identity theft, make sure that you shred anything you would normally just throw away that contains personal data or even looks like it contains personal data.
I even go so far as to shred the envelops that my mail comes in because I just don't trust those cryptic looking bar codes that are stamped across the bottom of them.
Hey, better safe than sorry I say.
Who knows what type of information they contain and what hackers could do with it.
You know, on average more than 50 percent of the general population run their documents through a shredder before they discard them.
Basically, it's just a great habit to get into.
Make sure to get a crosscut shredder rather than one that only cuts in strips.
A strip cutter leaves long paper bands that could be reassembled by a would be identity thief if they were really intent on finding out more about you.
Depending on the type and tax significance of your personal information, I have created a list of 5 different categories that just about everything can be filed into.
If you are like me, I think the first category will surprise you and be the hardest for you to get used to just because we think we are doing ourselves a favor by keeping every receipt, bill, statement and important looking scrap of paper that is handed to us or comes in the mail.
If you follow the outline below, you may find a certain sense of exhilaration in getting rid of all of the useless paperwork that has been creating such an unnecessary distraction in your life.
1. What paperwork should you discard after inspection and review?
Documents that you have no long-term need include:
- Bank Records - Keep deposit and ATM receipts until you reconcile them with your monthly statements then shred them.
- Cancelled checks for cash or nondeductible expenses
- Monthly checking and savings account statements - If they are not needed to prove deductions with your tax records then they can be shredded.
- Credit-card bills - You don't need to keep them after you've checked and paid them, unless you need a bill to support a deduction you'll be taking on your taxes, such as for a charitable donation (in which case you'll need to file the bill with your current-year tax records).
- Investment statements - You can shred your monthly and quarterly statements from brokerage, 401(k), IRA, Keogh, and other investment accounts as new ones arrive.
- Expired warranties
- Other records no longer needed, such as those that were replaced by newer versions - manuals of appliances that you've replaced, etc.
2. What paperwork should you discard yearly after doing your taxes?
- Pay stubs, after reconciling with W-2
- Monthly checking and savings account statements. After you do your taxes, file any statements needed to prove deductions with your tax records; the rest can be shredded
- Insurance policies - Keep policies that you renew each year, such as those for your home, apartment, or car, until you get new policies, then shred the old ones.
- Social Security statement - When you get your new statement shred the old one
- Credit-card bills - If an item you've charged is under warranty, keep the bill until the warranty expires. Staple the credit-card bill to the warranty document and put it in a file with other warranties; you may need the bill as proof of purchase if the item needs repair.
- Investment statements - hold on to annual statements until you sell the investments. You may want to have separate folders for traditional and Roth accounts to help you keep track of amounts that are deductible and nondeductible for tax purposes. Better yet, sign up for electronic statements if your financial institutions offer them.
- Business Contracts - hold until updated or dissolved
- Home purchase and improvement records - It is only necessary to hold them until the tax year after you have sold the property.
- Real Estate Deeds - Hold for as long as you own the property.
- Loan Documentation - Again, it is only necessary to hold the paperwork until the tax year after you sold the item the loan was for if needed for tax preparation.
- Receipts for large purchases - Until you sell or discard the item
- Service contracts and warranties - Until you sell or discard the item
- Vehicle Titles - Until you sell or dispose of the vehicle
- Wills - Until updated
- Personal federal and state tax returns and their supporting records. You should keep them because your returns can be randomly audited up to three years after the date you filed the return. If you fail to report more than 25 percent of your gross income, the government has six years to collect the tax or start legal proceedings. You can be audited at any time if the IRS suspects you of fraud.
After seven years, you may want to keep just the tax returns if you'd like to track your income over the years. Keep tax records more than seven years old in your out-of-the-way file cabinet. Better yet, scan the returns into your computer and store them on a CD or external hard drive.
Consider keeping copies of the following documents in a safe deposit box or locked in a fireproof/waterproof safe in your home:
- Adoption papers
- Advance directives*
- Birth and death certificates
- Citizenship papers
- Contracts of importance
- Deeds and property titles
- Educational Records
- Household inventory
- Life insurance policies
- Marriage licenses and divorce decrees
- Military service records
- Powers of attorney*
- Social Security cards
- Stock and bond certificates
At the very least, you home will be less of a firetrap than before.
Just let me state here that this is not legal information that I am sharing with you.
I am not a lawyer or financial expert nor have I ever played one on television.
This is obviously not an "all-inclusive" list so please let me know of any other tips you have in handling personal paperwork.
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The more Baby Boomers we can help the better place we make this world !!!
Thanks for joining me..........................................................