Posted on: Thursday, December 28, 2006
Sorting out your document clutter
By Russ Wiles
It's hard to stay on top of things if you get buried under a mountain of paper. Certain financial records should be kept for the long haul, but others are candidates for the shredder at the end of the year.
Permanent keepers include wills and estate-planning documents, loan-discharge papers, active insurance policies and so on.
Income-tax documents. The Consumer Reports Money Adviser suggests keeping tax records for seven years, but the Ernst & Young Tax Guide 2007 recommends holding on to canceled checks that support deductions or credits for six years and tax returns permanently. While the IRS generally goes back three years to audit a return, there's no limit if it suspects fraud or you didn't file a return.
Banking. Deposit slips and pay stubs can be disposed of after you reconcile monthly statements, notes the Consumer Reports Money Adviser. The newsletter recommends keeping canceled checks, check registers, checking-account statements and credit-card statements for one year, or longer if they support tax deductions or credits.
Investments. Dispose of monthly or quarterly brokerage and mutual-fund statements along with trade confirmations at year end, because you'll get an annual statement recapping your activity for the year. Because investments often have tax ramifications, hang on to annual statements for six or seven years, or longer if you want to play it safe. The same goes for 1099 forms and other investment-related tax documents.
Receipts and warranties. Toss them when you discard the item or its warranty expires. One exception involves home-improvement receipts that establish what you've invested. Such expenditures increase the portion of your home's value on which capital-gain taxes won't apply.
Most homeowners won't trigger taxes, as these usually apply only on profits above $250,000 (singles) or $500,000 (couples). But Congress has changed the law before and could do so again.
"Also, keep those in case you turn your home into a rental property," suggested Mary Zimmerman, a certified financial planner in Chandler, Ariz.
Cut down on clutter by keeping records on your computer, but some should be kept as paper documents in fireproof safes or safe-deposit boxes.
"Best-case scenario would have you saving your information both electronically and in hard copy form," said Jim Lange, an attorney and certified public accountant in Pittsburgh. "Either way, be sure to develop a filing system that is easy to use ... (or) you won't keep it up."