What financial information should I keep for the future?
One
way to cut down on the paperwork you should retain for more than one
year is to transfer all of those records to a flash drive. Purchase a 32 GB flash drive online for $9. Generally a copy of your
tax return that has been electronically filed can be saved in PDF
format. If you prepare you own taxes using TurboTax or some other
software, you have this option.
Then, you can simply copy that PDF
onto your flash drive, and voila, you have a digital record that can be
stored in your safe deposit box or other secure location.
Here is an overview of how long you should keep certain financial records:
Income tax records:
Generally, you should keep your personal tax returns for three years,
since the IRS has three years from your filing date to audit your return
if there is a suspicion of good faith errors. This three year rule also
applies if you discover a mistake in one of your old returns and decide
to file an amended return to claim a refund. So the bottom line is to
save all of your records that substantiate deductions, such as receipts,
canceled checks, charitable contributions, mortgage interest, and
others, for at least three years. The IRS has six years to audit your
return if it is of the opinion that you underreported your gross income
by 25 percent or more. Remember if you under report your income, you
could go to federal prison.
IRA contributions:
You should retain documentation of your Roth IRA contributions
permanently, so that you can prove that you already paid tax on this
money when the time comes to withdraw monies from this account. Each
year you should receive a form 5498 from your IRA sponsor or trustee,
setting forth the contribution that you made to that traditional IRA or
Roth IRA.
Retirement plan contributions: Keep the
quarterly statements from your plan until you receive the annual
statement. If everything matches up, then you can shred your
quarterlies, but be sure to retain your annual statements until you
retire.
Bank records: Go through your checks
annually and keep those related to taxes, business expenses, home
improvements and mortgage payments. Shred the rest.
Brokerage statements:
Keep these until you sell the securities. You will need the purchase
record from your individual stock purchases or mutual funds to prove
whether you have capital gains or losses at tax time. When you receive a
form 1099-B from the brokerage firm, make sure that their reporting
matches your monthly statements.
Bills: When you
have a copy of the canceled check or online documentation that a bill
has been paid, you can shred the bill. However, for your really big
purchases such as appliances, jewelry, rugs, antiques, furniture and
PC’s, be sure to retain your purchase receipt so that you can prove
value in the event of loss or damage.
Credit card receipts and statements:
For tax-related expenses, keep these for seven years. For other
purchases, keep your original receipts until you match them up with your
monthly card statement, then you can shred those receipts.
Paycheck stub or income statement:
Keep these until you receive your W-2, and if everything matches, you
should shred them. If they don’t match, ask for a corrected form, known
as a W-2c.
House or condo records: Keep
permanently everything pertaining to your purchase price or home
improvements. Keep records of the expenses of buying or selling the
property, such as legal fees and the realtor’s commission for 6 years
after you sell the property. Retaining these records is important
because any improvements you make in your house, as well as the expenses
of selling it, are added to the cost basis, and reduces your taxable
gain when you sell the property.
Medical bills:
You should retain these until they have been paid; then save your proof
of payment for at least one year. You will need these bills to document
any medical expenses that you claim on your income tax returns, so if
your medical expenses qualified you for a deduction, save that
documentation for three years.
No comments:
Post a Comment