Despite living in the midst of the digital age, every financial move you make creates a paper record. Pay your taxes, and you have a copy of your return. Sign up for direct deposit at work, and you still have printed pay stubs. Buy a house, and you’ll receive a bundle of paperwork that will take you weeks to read. If you’re like most guys, your life has tons of paper clutter that ranges from bills to bank statements, and everything in between. Here’s some help on knowing how long to keep financial documents, which documents to keep and when to dump them.
Tax returns and other documents
Your tax return is a copy of what you send to the IRS every April. It’s basically a financial snapshot of your life, from a taxation perspective. Included in that pile of financial records are paycheck stubs and records that support your deductions, such as receipts.How long should you keep it?
There’s not really a definitive time frame for how long you should keep tax records as it depends on how long the IRS can come after you for a certain transaction. In other words, different records need to be kept for different lengths of time, which is between two and seven years. But you don’t need to be a lawyer to figure out what to keep and what to toss. To make things simple, keep all your tax records for the maximum period -- seven years. Once that time frame has elapsed, proceed to shred the seven-year record all at once, rather than culling through each year’s returns wondering which documents to keep and which to throw out.
Side note: Technically, the IRS has 10 years to assess taxes that you didn’t pay. While you should always file a return, guys who find themselves in the situation of facing a 10-year inquisition from the IRS will want all their records from the past decade. On the whole, you can avoid this unpleasant situation by filing your taxes.
Canceled checks and receipts
These documents include records for mortgage payments, alimony and charitable contributions. A lot of these records will overlap with what you might call your tax documents, but they are a smaller group under the larger heading of "tax."How long should you keep it?
The IRS has three years to audit your return. So, you’ll want to hang onto these records for three years.
IRA contributions
These are records of the money that you contribute to retirement savings plans, like a 401(K). You receive statements on these plans -- which tell you how much money you made and how much you presently have in the account -- once per quarter with a summary at the end of the year.How long should you keep it?
You’ll want to hang onto records of your contributions indefinitely (basically until you withdraw the money during your retirement) to prove that you already paid the tax on it. As for the statements, dump the quarterly records once you match the figures with the annual statement. Keep the yearly records until you retire or close the account.
Bank records
Bank records include your monthly and yearly statements, including credits cards.How long should you keep it?
Depending on the type of financial record, you’ll want to hang on to them for anywhere from one year to forever. Obviously, you should keep records related to taxes, home improvements, mortgage payments, and business expenses. Other than those records, you can let everything else go. Regarding the paper trail attached to your credit cards, you should keep the charge slips until you get your statement (about 45 days). The statements should be held on to for up to seven years, particularly if they contain tax-related purchases.
Brokerage statements
If you invest with a broker or do it yourself as a day trader, you’ll get statements on what securities and bonds you bought.How long should you keep it?
The only answer here is: Keep the documents until you sell. These purchase/sales slips provide proof regarding your capital gains or losses during tax season.
Bills
We all get bills, and most of us want to forget about them once they're paid. For most expenses feel free to dispense with the rotten memory, but for bigger purchases you might want to hold on to that reminder for the insurance company.How long should you keep it?
You can get rid of most bills once you have proof of payment. Otherwise, you can purge them on a yearly basis. For large purchases such as jewelry, cars or antiques, you’ll want to save the bill for as long as you own the property, since having it can be useful for insurance purposes if you ever have to file a claim.
Home records
These records include everything from costs incurred for buying or selling the property to home improvements.How long should you keep it?
Keep them for six years after you sell the property. If you don’t have these, you can’t lower your capital gains tax on the property.
defiling your files
While keeping track of all these financial documents might seem like a headache, it doesn’t have to be. Now that you know how long you need to keep each financial document, you can establish a routine that involves doing some filing and dumping on a monthly and yearly basis. The more organized you are, the easier the dumping will be. But a word of caution: You must shred your financial documents to maintain your privacy.Resources:
http://taxes.about.com
http://ask.yahoo.com
www.wwwebtax.com
http://www.bankrate.com/brm/news/mtg/20000518h.asp
http://www.irs.gov/businesses/small/article/0,,id=98513,00.html
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