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Financial
Records:
What to Keep and for How Long
Personal financial records
are a necessary part of our lives, but it's easy to
get overwhelmed by the volume of papers that can accumulate.
January is an excellent time to get your financial records
in order. Here is some advice to help you determine
what you should keep and what you should purge from
your files:
Permanent
Records
Personal papers you should safeguard for your family
include birth certificates, Social Security cards, marriage
certificates, divorce decrees, insurance policies, veteran's
discharge papers, wills, living wills, powers of attorney,
real estate deeds, mortgages, automobile titles and
important contracts. These and other permanent records
that are difficult to replace should be kept indefinitely,
preferably in a safe deposit box. You'll need them to
reestablish your financial life in the event of a fire,
theft or other disaster.
Tax
Records
What often determines the records you need to keep -
and for how long - is whether they are related to your
tax return. You should save tax-related documents, such
as receipts that support your deductions, for a minimum
of three years after you file your original return.
Under normal circumstances, the IRS has three years
from the date you file to audit you.
If you omit an amount in
excess of 25 percent of the amount of gross income stated
in your tax return, the statute of limitations extends
to six years. There is no time limit if you failed to
file a return or filed a fraudulent return.
Checking
Account and Credit Card Statements
Once you have reconciled your checking account statement,
you may discard it, unless it shows deductible expenses.
If so, you should retain your statements and canceled
checks for at least three years after you file. The
same holds true for credit card statements. You can
discard bank deposit slips and ATM receipts after you
verify the transactions on your statement.
Investment
Account Statements
Monthly or quarterly investment statements can be shredded
once you get your year-end statement and confirm that
it accurately reflects your transactions for the year.
Keep trade confirmations, showing the purchase and sale
of mutual funds and stocks. These records should be
held for three years after you report the capital gain
or loss on your tax return.
Retirement
Plan Statements
Keep your quarterly statements from your retirement
plans until you receive your annual summary. Once you've
compared the information, you can toss the quarterly
statements. If you make nondeductible IRA contributions,
keep the records to prove your cost basis when it comes
to receiving distributions.
Pay
Stubs
Keep pay stubs until you've reconciled the totals with
your Form W-2. If the amounts match, you can destroy
them.
Utility
Bills
Unless you need them to support the home office deduction,
you can generally dispose of utility, phone and cable
bills once you have paid them.
Home
Improvement Records
Even though most home sale gains may be tax-free, it's
still a good idea to hold onto your original purchase
contract and receipts for major home improvements. You
could potentially face a tax bill should you need to
sell a home you have lived in for less than two years,
or if the sale of your home results in a gain of more
than $500,000 for joint filers ($250,000 for single
filers).
Receipts
and Warranties
Receipts for major purchases and warranties should be
kept for as long as you own the items. Receipts can
be useful in proving the value of property that is lost
or damaged.
Check
with Your CPA at
Toscano & Ardito
CPAs agree that you should review your financial records
at least once a year and carefully discard what is no
longer necessary or relevant. With identity theft on
the rise, invest in a paper shredder and use it to destroy
all documents with personal identifying information.
Toscano & Ardito,
P.C.
40 Bayfield Drive
North Andover, MA 01845
Tel. 978-688-2880
Fax 978-688-2759
Contact Us:
info@tandacpa.com
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