May 12th, 2017
Spring Clean Your Financial Documents
- As a rule, keep your tax records and supporting documentation for three years from the date you filed your original return. Supporting documentation includes not only your W-2 and 1099, but also bills, credit card and other receipts, mileage logs, and any other records to support deductions or credits you may have claimed on your tax return. The statute of limitations for a timely filed 2016 tax return began to run on April 18, 2017, so keep those records until at least April 18, 2020.
- Keep your filed tax returns with proof of filing and payment for at least seven years, however, some tax professionals recommend retaining these indefinitely.
- If you file a claim for a loss, keep records for seven years.
- If you do not properly report all your income (generally, if you omit more than 25% of the gross income shown on your return), the statute of limitations will be extended. Keep those records for at least six years after the filing date.
- If you do not file a return, keep those records indefinitely because the statute of limitations never runs if you haven’t filed, and the IRS can audit you at any time. Lastly, the IRS can also audit you at any time if they suspect fraud on your return.
- Keep records that show the initial purchase price for stocks and mutual funds so you can calculate your cost basis when you sell the investments. After that, you can shred the documents once the three- or six-year IRS window closes. However, if you bought the asset in 2011 or later, the brokerage firm now tracks that information.
- If you make contributions to a traditional IRA, whose contributions are generally tax deductible on the way in while withdrawals are taxable on the way out, hold onto annual statements and records of contributions until you make a complete withdrawal/distribution. This will help ensure you don’t overpay taxes when you withdraw the money. This is also true for 401ks.
- Keep paycheck stubs until you receive your W-2 form in January to check its accuracy.
- If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or are paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
- Keep checks, bank statements, and credit card statements relating to your taxes, business expenses, or housing and mortgage payments until the statute of limitations expires. Other bank statements should be kept about a year.
- General purpose bills should be kept until you have received the cancelled check or corresponding credit card statement with proof of payment. However, if the bill is for a big ticket purchase, it should be kept along with proof of payment for the life of the item for insurance purposes.
Because your financial paperwork contains personally identifying information and details about your accounts, be sure to shred what you toss to keep your information out of the hands of potential identity thieves. A cross cut shredder is better than a strip one that leaves long paper bands that could be pieced back together. Also, be sure to keep original, hard copies of important documents such as deeds and titles, loan/mortgage paperwork, powers of attorney, wills, military records, birth certificates, marriage license, and major debt repayment records.
Let the spring cleaning begin.