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Family & Consumer Sciences |
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Organizing Financial Records
Debit card and ATM receipts, credit card bills, bank statements and canceled checks all document where your money goes. Some of us keep these pieces of paper indefinitely because we never know when we may need them. However, hanging on to all of these records forever is not necessary.
It is important to develop a plan for managing all this paperwork. If you don't already have a system for filing your family records, including your financial records, consider starting a system that will work for your household. Some records can be organized in files or boxes in your home. Records that would be difficult to replace should be kept in a fireproof home safe or safe deposit box. It is important that your home file be organized to allow quick access to required documents and information.
Taxes
One of the most important reasons for keeping financial records organized is that federal tax rules require you to have receipts and other records that support items on a return for as long as the IRS can assess you additional tax. The IRS can assess a tax up to three years from the date you filed your return, but it can be six years if the IRS suspects you under reported your income by more than 25 percent. The three year deadline also applies if you discover a mistake in your return and decide to file an amended return to claim a refund. There is no time limit if you failed to file a return or filed a fraudulent return.
Canceled checks
Checks that have no tax or other long term purposes can be destroyed after a year. File those that support tax returns, such as charitable contributions or tax payments and keep them for at least seven years, long enough to cover the six year period that starts when you file your tax return for the year the check was written. File and keep indefinitely any canceled checks and related receipts or documents for a home purchase or sale, renovations or other improvements to property you own and non-deductible contributions to an Individual Retirement Account.
ATM, Deposit, Debit card receipts
Save them until the transaction appears on your statement and you have verified the accuracy of the information.
Credit card receipts and statements
Keep your original receipts until you get your monthly statement. Shred the receipts if the two match up. Keep the statements for seven years if tax-related expenses are documented.
Credit card contracts and loan agreements
Keep for as long as the account is active, in case you have a dispute with your lender over the terms of your contract.
Stocks, Bonds and Other investments
Keep documentation of your purchase or sale of stocks, bonds and other investments while you own the investment and seven years after that. It is recommended that these documents be kept in a safe deposit box. Keep brokerage statements until you sell your securities. You need the purchase / sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.
IRA contributions
Keep permanently. If you make a nondeductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.
Retirement and Savings plan statements
Keep from one year to permanently. Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary. If everything matches, then shred the quarterlies. Keep the annual summaries until you retire or close the account.
Bills
Keep from one year to permanently. In most cases, when you receive the canceled check, the bill can be shredded. However, bills for big purchases such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. should be kept in an insurance file for proof of their value in the event of loss or damage.
Paycheck stubs
Keep for one year. When you receive your annual W-2 form from your employer, make sure the information on your stubs matches. If it does, shred the stubs. If it doesn't, demand a corrected form, known as a W-2c.
House, Condominium records
Keep from six years to permanently. Keep all records documenting the purchase price and the cost of all permanent improvements, such as remodeling, additions and installations. Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent's commission for six years after you sell your home. Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it are added to the original purchase price or cost basis. This adds up to a lower profit (also known as capital gains) when you sell your house. Therefore, you lower your capital gains tax.
When cleaning out your files, be sure to shred, not just discard, any documents with your Social Security number, bank account number, credit card number or other personal information to avoid the possibility of someone stealing your identity or accessing your accounts.
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| Last Updated: 3/9/2009 1:26:01 PM |
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