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Steps to simpler record keeping


Steps to simpler record keeping

by organier
in Blog

Nearly all of your financial papers can be divided into three categories: records that you need to keep only for the calendar year or less, papers that you need to save for seven years (the typical window during which your tax return may be audited), and papers that you should hang onto indefinitely.

For instance, do you really need to save all those ATM-withdrawal receipts? No. Once you’ve checked the information as it appears in your online account or on your monthly statement,  you can throw away the ATM slip. The same holds true for deposit slips and credit-card receipts. Don’t keep sales receipts for minor purchases after you’ve satisfactorily used the item a few times or the warranty has expired. Keep receipts for major purchases (any item whose replacement cost exceeds the deductible on your homeowners’ or renters’ insurance).

Shortly after the end of the calendar year, you will probably be able to throw out (or more safely, shred) a slew of additional paper, including your paycheck stubs, monthly credit-card and mortgage statements, utility bills (if they are not needed for business deductions), and monthly or quarterly reports from brokerage and mutual-fund companies for the previous year.

You will, however, need to hold onto those final credit-card statements, along with your W-2s and 1099s, for at least three years and, preferably, for seven. The Internal Revenue Service has up to three years from the date you file your tax return to examine it for errors and as long as six years to conduct an audit if there’s reason to suspect you underreported your gross income by 25 percent or more. (There is no statute of limitations for anyone who has deliberately committed fraud.) Indeed, you’ll need to keep any paperwork that supports your return until that audit window closes. Among the additional documents you should retain: canceled checks and receipts for all deductible business expenses (such as those for entertainment, home-office equipment, and professional dues), retirement-account contributions, charitable donations, child-care bills, out-of-pocket medical expenses, alimony, and mortgage-interest and property-tax payments.

Unless you’ve knowingly submitted a false return, you can toss these supporting documents after three to seven years, depending on how straightforward your tax situation is.

But don’t throw out the actual tax returns or the year-end summaries of your investment accounts, even after the chances of an audit have all but vanished. These documents don’t take up much space and can come in very handy for future financial planning.

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  • September 24, 2015

    Saved as a favorite, I really like your blog!

  • January 11, 2016

    I was able to find good advice from your blog posts.

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