If you are like many of us and recently found yourself sorting through numerous documents to find papers needed for your tax return, then you may be ready to get organized.
Finding all the documents our accountant needs in order to prepare our tax return is one of the reasons individuals wait until the last minute for tax preparation. With a little organization, you can avoid the dreaded task of sorting through all your papers when there is no more time to procrastinate.
Set up expandable folders where documents can be filed away as you receive them. The individual pockets can be labeled based on time.
One pocket can store documents that can be destroyed in one month or less, another will keep documents for one year or less and a separate pocket should be available for tax related items.
A separate folder can be set up for documents that will expire when an event occurs or that need to be kept indefinitely.
To help you decide where to file your documents, I’ve provided a general guideline on how long each type of records should be kept.
One Month or Less
Utility, cable and telephone bills can be tossed once you know they are correct. If you will be using these expenses on your tax return, you will want to hold them as long as you keep your tax returns.
Bank and credit card receipts
ATM, bank deposits and credit card receipts should be held for one month until reconciled with your bank or credit card statement. As with utility bills, if any of the receipts will be used on your tax return, be sure to keep them as long as you keep the tax return.
One Year or Less
Pay stubs should be held until you can reconcile the amount to your W2. However, if you are planning on applying for a mortgage or loan, you may want to have a few months of pay stubs available for their processing.
Medical bills can be shredded once the claim has been paid. If you think you will be able to itemize medical expenses on your tax return, you will want to keep the medical bills as long as the tax return.
Monthly or quarterly investment statements should be kept until you receive your annual investment statement. If everything appears correct on the annual statement, you can shred the monthly statements.
Most banks allow you to request old statements and checks. There is usually a fee for this service, so if you made a significant purchase with a check, you may want to hold on to select checks and/or statements. Otherwise, once they have been reconciled, they can be shredded.
Until a Specific Event Occurs
- Investment purchase confirmations should be held until the investments are sold.
- Hold on to loan documents until the loan is paid in full.
- Keep vehicle titles until you are ready to sell the vehicle.
- Hold on to life, disability and long-term care insurance policies as long as they are in force.
- If your home, car, umbrella and renter’s insurance renews annually, keep the policy until you have a replacement policy.
- Home improvement purchase and repair invoices will be needed until you are ready to sell your house. The improvements will be part of the calculation for the cost basis of your home.
- Since the government has six years to collect any unpaid taxes or to start legal proceeding, you will want to keep your tax returns, and all supporting documents, for seven years.
- Keep expired contracts and leases for seven years.
- Stock and bond certificates that have been cancelled should be held for seven years.
The following documents should be held indefinitely:
- Birth certificates
- Adoption records
- Death certificates
- Marriage licenses
- Divorce decrees
- Social Security card
- Military discharge papers
- Retirement plan documents
- Estate planning documents
- Wills, trusts, power of attorney and health care proxies
- Inventory of safe deposit box items
Permanent Document Storage
Once you have decided what documents need to be kept indefinitely, a decision needs to be made as to the best safekeeping method. Here’s my article that can help you with that: “Where Should I Store My Financial and Personal Information?”
In addition to a physical storage location, you may want to consider organizing all of your final wishes and documents in one convenient flash drive that can be given to your loved ones.
How do you manage your legal and important documents? How long do you keep your tax reports? Do you have a system for organizing all of your final wishes? Please let us know your best practices in the comments below.