September 07, 2006

RECORD KEEPING - (What do I keep? How long?)

The following are some general suggestions/guidelines about how long you should keep personal finance and investment records on file (Source - ...

Tax Information. Keep returns, canceled checks/receipts, charitable contributions, mortgage interest and other information for 7 years. Why so long? The IRS has 3 years from your filing date to audit your return if it suspects good faith errors. They have 6 years to challenge your return if it thinks you underreported your gross income by 25% or more. There is no time limit if you failed to file or filed a fraudulent return.

IRA Contributions. Keep indefinitely. If you have made a nondeductible contribution, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.

Retirement/Savings Plan Statements. Keep from one year to permanently. Keep the quarterly statements from 401(k) or other plans until you receive the annual summary ... if everything matches up, you can then toss the quarterly statements. Keep the annual summaries until you retire or close the account.

Bank Records. Keep from one year to permanently. Go through your checks each year, keeping those related to taxes, business expenses, housing, and mortgage payments.

Brokerage Statements. Until you sell the 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.

Bills. Keep from one year to permanently. In most cases, when the canceled check from a paid bill has been returned (or cleared), you can get rid of the bill. Bills for big purchases (jewelry, appliances, cars, furniture, computers, etc.) should be kept in an insurance file for proof of their value in the event of theft/loss or damage.

Credit Card Receipts and Statements: Keep from 45 days to 7 years. Keep your original receipts until you get your monthly statement; toss the receipts if the two match up. Keep the statements for seven years if tax-related expenses are documented.

Paycheck Stubs. Keep for one year. When you receive your annual W-2 form from your employer, make sure the information matches - if it does, toss the stubs, if it doesn't, demand a corrected form.

House. Keep from 6 years to permanently. Keep all records documenting the purchase price and the cost of all permanent improvements (remodeling, additions, and installations). Keep records of expenses incurred in selling and buying the property (legal fees, real estate agents commission) for 6 years after you sell your home. Holding onto 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 greater profit (capital gain) when you sell your house, thus lowering your capital gains tax.

Additional Resources.
- Recordkeeping for Individuals (IRS Pub. 552)
- Our Family Records (Univ of Wisconsin Extension) - very detailed!
- Record Keeping (Iowa State Univ Extension)

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