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Wednesday, February 2, 2011

Important Things Need Important Places

Well folks, I know you will all be excited and cheer loudly when you hear me say, "It's TAX TIME again!!!"

Wait, what? Why do I only hear the sound of crickets??!! Is it because you dread giving more money to the government or maybe the fact that you have to find all those important documents you need to file your taxes??? AGAIN!

Don't worry, I am not some quirky person with a huge desire to file my taxes every year either. I dread it just as much as everyone, but I do know that I try and make it easier on myself every year by keeping my paperwork filed and organized properly. Do you?

WHAT??? Crickets again??? Well, I am here to help! How about we go through what to keep, where to keep it, and how long to keep all this paperwork. Hopefully this will cut down on some tax time stress!!!

Let's take a look at what paperwork you should keep and how long you need to hang onto it. Take a look at this list found on Bankrate:

Financial records timeline
Type of record
Length of time to keep, and why:


Canceled checks/receipts (alimony, charitable contributions, mortgage interest and retirement plan contributions)

Records for tax deductions taken
Seven years
  •          The IRS has three years from your filing date to audit your return if it suspects good-faith errors.
  •           The three-year deadline also applies if you discover a mistake in your return and decide to file an amended return to claim a refund.
  •           The IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more.
  •           There is no time limit if you failed to file your return or filed a fraudulent return.

IRA contribution records
If you made a nondeductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.
Retirement/savings plan statements
From one year to permanently
  •           Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then shred the quarterlies.
  •           Keep the annual summaries until you retire or close the account.

Bank records
From one year to permanently
  •           Go through your checks each year and keep those related to your taxes, business expenses, home improvements and mortgage payments.
  •           Shred those that have no long-term importance.

Brokerage statements
Until you sell the securities
You need the purchase or sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.
From one year to permanently
  •           Go through your bills once a year.
  •          In most cases, when the canceled check from a paid bill has been returned, you can shred the bill.
  •           However, bills for big purchases -- such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. -- should be kept in an insurance file for proof of their value in the event of loss or damage.

Credit card receipts and statements
From 45 days to seven years
  •           Keep your original receipts until you get your monthly statement; shred the receipts if the two match up.
  •           Keep the statements for seven years if tax-related expenses are documented.

Paycheck stubs
One year
  •         When you receive your annual W-2 form from your employer, make sure the information on your stubs matches.
  •         If it does, shred the stubs. If it doesn't, demand a corrected form, known as a W-2c.

House/condominium records
From six years to permanently
  •           Keep all records documenting the purchase price and the cost of all permanent improvements -- such as remodeling, additions and installations.
  •           Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent's commission, for six years after you sell your home.
  •           Holding on to 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 (also known as capital gains) when you sell your house. Therefore, you lower your capital gains tax

WOW - what a comprehensive list!! Now, I suggest that each one of these categories has its own file in a fireproof filing cabinet which can be found at any local office supply store. Organize your cabinet whichever way you like but keep it simple. The more simple it is kept, the easier it will be for you to keep it up all year long. I like to buy hanging file folders that allow for clear tabs all along the top so I can clearly see each file and what contents are inside. You could even get manila folders to sub categorize each hanging file folder. For example, say you had two credit cards: Mastercard and Visa. You could make a manila folder for each and place in the main hanging folder titled "Credit card receipts". It is a personal preference, but the more organized, the easier.

We can take it a step further and organize a small, portable, fireproof box to hold important documents (or copies) in case of a fire or emergency. This should hold things like:

  • Birth/death certificates
  • Social security cards
  • Passports
  • Emergency contact information (Insurance agents, doctors, family)
  • Marriage certificates/divorce decrees
  • Wills
  • Copies of driver's license, green card, or other identification cards
  • Copies of life saving prescriptions (like insulin, asthma inhalers, etc)
  • List of bank account and credit card account numbers
  • Inventory of household goods
Since these documents are pretty darn important, make sure you keep it somewhere it is easily accessed. 

So now that we are getting more organized for tax time, can I get a single "WOO HOO!"????

That's better!

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