Financial documents can start to overflow

05.05.06

Dear Kathi,

I recently made a commitment to clear out the enormous amount of papers in my life. Now I need to know which papers to keep and which ones I can toss with abandon. It would be great to have some hard facts about what I need to keep for tax purposes. For instance, how long do I need to keep tax records, home records, and what about all of the stock papers I receive every month?

Abby, San Diego

Abby,

Without a set action plan for paper flow, most of us wallow in bank
statements, credit card bills, mutual fund reports and tax returns. Even if
filing cabinets are not overflowing, chances are more papers than necessary are saved. Some even prefer to shred nay item that includes their name and address. It is up to you to determine your comfort zone with tossing personal information into the trash.

A general rule of thumb for getting rid of papers is if your name and social
security number or bank account information is on the piece of paper, it
should be shredded. Every individual has his or her own concern threshold regarding identity theft. Some people prefer to shred any item that includes their name and address. It is up to you to determine your comfort zone whendiscarding personal information.

Here a few tips on fighting document overwhelm:
State and federal income tax returns. Keep at least seven years. Ten years is very conservative. Ordinarily, the IRS has three years to audit your returns. If it suspects you've underreported more than 25 percent of your income, it can audit back six years.

Canceled checks. Canceled checks for deductible expenses and charitable contributions should be saved as long as you save tax returns. If you no longer receive canceled checks, keep the bank statements with the relevant items highlighted.

Records of monies spent on home improvement (projects) should be saved as long as you own your home. You may need proof of these expenses to lower the tax on your home when you sell it. File these canceled checks with your permanent home records.

Keep checks from expensive purchases, such as jewelry, appliances or
antiques, as long as you own the items. If they are stolen, or if a warranty
dispute arises, you can use the checks as proof of purchase. You can toss most other canceled checks at the end of the year.

Bank statements. Typically, if they do not include tax-related information,
you do not need to keep them after the next statement arrives. Many people save them interminably. Definitely toss yours after a year if they do not contain tax-related purchases.

Credit card statements. In most cases, you don't need to save them longer than one month. When you receive a bill, it usually indicates whether your previous payment was received. If that information is correct, you don't need to save the previous month's bill. Exceptions: bills that document deductible expenses, such as home-improvement purchases, and for other major purchases, such as appliances and jewelry. If you can't find the sales slip, your credit card statement will provide proof.

Stock records. Save purchase and sale confirmation records as long as you own the stock, plus six years. You'll need the price and date you bought or sold the stock to calculate the cost basis of your investments for the IRS. Also save monthly statements showing reinvested dividends, stock splits and other changes in your investments, says Kent Noard, a financial planner. You can discard monthly and quarterly statements if you get a year-end summarystatement.

Mutual fund statements. The rules are the same as for stocks. If your mutual fund statements are cumulative, discard the previous statement as soon as you get the current report and at year's end, you may be able to ditch all but the year-end statement. December is usually separate from year-end. For both mutual funds and stocks, discard all but the most recent shareholder reports.

Pay stubs. Keep them until you get your year-end W2 form. Financial planners also recommend keeping each year’s final earnings statement indefinitely, to give you a handy record of your earnings and deductions.

Home mortgage information. Keep a copy of your mortgage in a safe place as long as you own your home. Mortgage bills, like credit card bills, can be discarded as soon as you get confirmation that your payment has been received. Most mortgage companies provide a year-end summary. Keep these as long as you own your home.

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Thanks for writing and don’t hesitate to write with any other specific questions.