(Part One of Two)
Have you ever seen the A&E TV show called "Hoarders"? Or perhaps "American Pickers"? It's a fascinating (OK, frightening) look inside the lives of people whose inability to part with their belongings is so out of control that they are either on the verge of a personal crisis or are living amidst copious amounts of stuff. Long before you're a candidate to be featured on a show like these mentioned, you might ask yourself what records you really need to keep.
First, identify the reasons for which you need to keep records. Income tax preparation requires proof of income and deductions. Records help in estate settlement and insurance or benefit claims. Death, fire or theft may require records to establish ownership. If a financial institution or other organization makes a mistake, your records may be needed. Records may be necessary to collect veteran's benefits. Past records can help plan future budgets.
Throw away Right Now
Owners manuals and warranties for appliances, cars or other equipment you no longer own; credit card receipts and cash receipts that either have no tax impact or do not document major assets; and receipts or other papers relating to ownership or repair of items of lesser value or that you have thrown out, sold, or given away. If a receipt documents a warranty, keep it only for the length of the warranty.
Deposit slips and investment confirmations can be tossed after they are verified on a statement.
Medical insurance statements can be tossed after verification with medical bills.
What to keep for a Year or Less
Utility Bills. If you are deducting the costs of utilities, you may need to keep them with your tax records. Otherwise, three months worth of bills should be sufficient.
Pay stubs can be discarded after you reconcile them with your annual W-2.
Credit card statements should be kept only if they are needed for tax records.
Keep for Six to Seven Years
Tax Returns and their backup documentation. Most processionals recommend keeping these records for seven years. Why seven? The usual statute of limitations for the IRS to audit or assess additional tax is three years. For substantial understatements or fraud, the period is six years. Making the retention period seven years gives you some leeway to make sure the six year period is well and truly covered.
Cancelled checks, account statements and check registers should be kept for seven years.
Well what about those things I need to keep indefinitely? Or permanently? Stay tuned for next week's installment of Taxing Matters to find out.
Until next time,