Planning matters

Filing Cabinet Cheat Sheet

Tax season spurs a lot of questions from clients about which papers should be kept or tossed. It’s a good time to do a little spring cleaning of your paperwork. Use this cheat sheet to find out what papers you need to keep, and how long you should hang on to them.

It’s nobody’s favorite activity, but spending some time organizing your records is certainly worthwhile. Paperwork worth keeping falls into one of four categories:

  1. Records and receipts that help you keep track of day-to-day consumer activities
  2. Tax records
  3. Records of financial transactions and valuations
  4. Documents needed in case of emergency or death.

From an IRS standpoint, there are only two types of tax information you need to be concerned about: information you need in case of an audit, and records that support your claims of income.

IRS Timeframes
How much time does the IRS have?

  • Initiating an audit: 3 years
  • Pursuing underreported income: 6 years
  • Investigating claims of fraud: forever

You can read and recycle:

  • Annual reports
  • Mutual fund prospectuses

Keep for 3 years:

  • Household Bills
  • Credit card statements
  • Receipts for minor purchases

Keep for 7 years:

  • Canceled checks
  • Check registers
  • Bank statements
  • Pay stubs (if you worked at the same employer all year, your year-end stub is sufficient)
  • Tax returns and supporting documentation

Keep forever, or until assets are sold:

  • Receipts for home improvements
  • Receipts for major purchases
  • Annual investment statements (brokerage accounts, mutual funds, IRAs, retirement accounts, annuities, pension plans, etc.)
  • Gift tax returns
  • Inheritance papers
  • Insurance policies
  • Copy of your will, trust, and/or powers of attorney
  • Healthcare proxy forms
  • Legal papers about formerly owned properties
  • Marriage certificates
  • Social security cards
  • Burial vault/plot deeds
  • Car titles
  • House titles/deeds

Computer data: If you store any of this information electronically, make regular backups of your electronic financial information, and store it separately from your computer (such as on an external hard drive or secure cloud service). Safeguarding this data is as important as retaining paper records.

Safe deposit boxes:
A word of caution: In the event of a death, safe deposit boxes may be sealed and inaccessible for a period of time, even for those with a key. Because of this, here are some guidelines of what NOT to store in a safe deposit box:

Original copies of wills
Powers of attorney
Insurance policies
Anything else that may be needed in the event of death

Written By Johnson Bixby