Personal financial records: What do you keep and for how long?
An overflowing file cabinet of bank statements and boxes of old check stubs can make you want to start a bonfire in your backyard. But before you grab the lighter fluid and matches, make sure you know what you can torch and what you need to keep.
Clearing out your financial documents is a good process to go through every year. Post-tax season is an ideal time to do a paperwork purge. You can clear your file cabinet and your mind of unnecessary clutter. You will need to hang on to certain documents, though, especially as they pertain to your taxes. Create a system that keeps and organizes the important stuff, and then you can get rid of the rest.
These documents are necessities that would be difficult to replace if lost.
• Income tax returns and payment checks
• Important correspondence
• Legal documents
• Vital records (birth/death/marriage/divorce/adoption/etc.)
• Retirement and pension records
• Investment trade confirmations and statements that indicate buying and selling
• Audit documents
• Trust documents
The IRS and many states can conduct an examination of your personal income tax return for three years following the filing of your income tax return.
When a tax return is filed prior to the April 15 due date, it is deemed filed on the due date. For example, if a taxpayer filed a 2010 Form 1040 on March 1, 2011, the statute of limitations begins to run as of April 15, 2011, so the three-year period expires April 15, 2014. If a taxpayer files a tax return on extension, then the three-year clock begins ticking on the actual date of filing. The same time frame applies to taxpayers filing an amended income tax return seeking a refund.
There are three situations where the three-year period is not applicable. First, if it is determined that gross income was omitted from the tax return that exceeds 25 percent of the gross income reported, the statute of limitations is increased to six years.
Second if there is indication of fraud, there is no statute of limitations.
Finally, if a tax return is not filed, the clock never begins to tick.
Keep for a limited time
Below are items you must keep for some time before discarding, including a suggestion for how long to keep them.
• Mortgages/deeds/leases (Keep six years beyond the agreement.)
• Car records (Keep until you sell the car.)
• Credit card receipts (Keep until you reconcile your credit card statement.)
• ATM and deposit slips (Keep until you reconcile your bank statement.)
• Insurance policies (Keep for life of policy.)
• Pay stubs (Keep until reconciled with your W-2.)
• Property records/builder contracts/improvement receipts (Keep until property sold.)
• Sales receipts (Keep for life of warranty or life of the item on large purchases.)
• Warranties and instructions (Keep for life of product.)
• Other bills (Keep until the payment is verified on the next bill.)
Tips for storage and safety
Now that you know what you're keeping and for how long, decide where you want to keep it. Many people still keep paper files, but electronic records are becoming increasingly popular.
• Active vs. archive. Keep an active file that you can easily access for documents you'll need in the current year. Create an archive system for documents you need to keep for legal reasons but don't need to access on a regular basis.
• Consider emergencies. This could include theft, fire, natural disaster, personal injury, or even death. Consider keeping an "emergency kit" with your attorney or a trusted family member that contains copies of critical documents and records.
• Storing information. Documents that are irreplaceable should be protected in a safe deposit box or a fireproof safe or backed up electronically to your computer and/or an external hard drive that is encrypted. You can also use cloud services. If you store your documents electronically, you should periodically review them to be sure the files have not been damaged and your documents are still available.
• Buy a shredder. When you're ready to purge documents, don't let any legible information from your personal accounts end up in someone else's hands. Shred it for peace of mind.
A CPA can help
These are general guidelines to help you organize your personal and financial documents. If you have unusual or extenuating circumstances, consider consulting with a CPA before throwing away or destroying any important legal, business, or financial paperwork.
For more information about Pennsylvania Institute of Certified Public Accountants (PICPA), visit www.ineedacpa.org.