October 5, 2015
Your Financial Paperwork
Your Financial Paperwork
WHAT TO SAVE AND WHEN TO THROW IT OUT
Are you saving your financial paperwork because you need it or because you can’t bear to get rid of it? The question of what to save and for how long seems to trouble most individuals. As advanced technology makes it easier to preserve files well into the future, the value of keeping paperwork - from receipts and paid bills to old checks and tax returns - will lessen considerably. When you finally face those overflowing file cabinets or that attic full of boxes, follow these suggestions for cleaning up your household records:
TAX RETURNS
If there is one rule of thumb for almost all paperwork, it is to hold it for as long as the Internal Revenue Service considers necessary.
Contrary to popular opinion, however, the IRS does not recommend keeping everything for seven years. On most items, the agency can only audit you for three years from the date the return is filed. (If you underreport income on your return, the IRS can pursue you for up to six years; there is no statute of limitations on fraudulent or false returns.)
While the IRS can get copies of returns for the last six years, it is wise to hold copies of your tax returns in perpetuity. Old tax returns - especially those covering the sale of property - may be important in compiling future returns. What you can throw out after three years, however, are your underlying or back-up paperwork including all the receipts that justified deductions, comprised expenses, etc.
HOME IMPROVEMENTS
Bills that cover improvements to your home should be kept for as long as you own the home, because they may figure into the taxable value of the home when it is sold. Keep in mind, however, that IRS standards only allow improvements — not repairs — to be deducted. Don’t bother saving receipts for yardwork or the dishwasher repair.
Remember to keep your home improvement records together in one file and not separately with the individual tax return they might affect. When you decide to sell your home, you will want easy access to all the information about improvements you made.
INVESTMENT RECORDS
Like home improvements, investment records that show purchase prices should be kept for the lifetime of the investment. Knowing the value of your security when it was purchased will be crucial to determining the taxable gain when the investment is sold.
CONSUMER BILLS
Credit card statements, utility bills, department store and service station charges, and so on have little or no long-term retention value. Consider the three-year standard ample time, but also realize that many people toss these statements after only one year. For most of you, the only exceptions would be in cases of late payments that might show up on a credit history or in situations of unresolved disputes.
For big-ticket purchases, attach your receipts to warranty information and file them separately from other bills. This will provide you with easy access to cost and repair information in case something breaks or the item is stolen.
CANCELED CHECKS
Unless it pertains to your tax return - charitable contributions, mortgage payments, home improvements, etc. — there is little reason to save a canceled check. By rule, banks must keep records dating back six years and for five years after an account is closed. As the banks put copies of checks onto microfiche or computer disk, they would be able to pull any important check you might ever need. So go ahead and toss all the old checks you used to pay for groceries, new sneakers, or airplane tickets.
One last tip: Before getting rid of all your excess paperwork, make sure you have an accurate record of current and past bank and credit accounts, including account numbers and dates when accounts were closed.
Important note: This is a summary and, as such, it is not intended as a complete explanation of
all applicable situations. Many exceptions, definitions, and special rules in the law have been paraphrased, simplified and/or omitted. Readers should not take specific action in reliance on this summary without consulting the statute and regulations or seeking advice form a qualified professional.
Information in this material is for general purposes only. You should consult Sechrest & Bloom, LLC
at 978-263-7771 for specific recommendations about your particular situation.
This article was supplied or updated on October 4, 2015.