02 December 2011
Financial and Tax Records: Get Organized

Taming that tangle of financial records and paperwork can make your life easier throughout the year, and is especially helpful at tax time. Consider these general guidelines for maintaining financial records:

IRA contributions If you made a nondeductible contribution to an Individual Retirement Account (IRA), keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.

Retirement/savings plan statements — Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then toss the quarterlies. Keep the annual summaries until you retire or close the account.

Brokerage statements — Keep these until you sell the securities. You need the purchase/sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.

Bank records — Go through your bank statements and/or checks each year and keep only those related to your taxes, business expenses, housing and mortgage payments.

Credit card receipts and statements — Keep your original receipts until you get your monthly statement; toss the receipts if the two match up. For documentation of tax-related expenses, keep the statements for seven years.

House/condominium — Keep all records documenting the purchase price and the cost of all permanent improvements. Also keep records of expenses incurred in selling and buying the property for six years after you sell your home.

Tax Records

The IRS says taxpayers must keep old tax returns and other tax records for as long as they may be needed for the administration of any provision of the Tax Code. Generally, this means you must keep records that support the items shown on your return until the statute of limitations for that return runs out.

Normal audit limit                                                                                                    3 years

Audit limit if gross income is understated by 25 percent or more                 6 years

Time limit for deducting worthless securities/bad debts                                7 years

Audit limit if no return is filed                                                                                 no limit

Audit limit if fraud is committed                                                                            no limit

All tax records for properties such as homes, businesses and investments should be held until you dispose of the property and report the disposition on your tax return, in addition to the time limits above.

Get Organized

Now that you know what you have and how long to keep it, the trick becomes how best to store it.

Consolidate accounts. If you’re a mutual fund investor, for example, consider consolidating your funds into a single account within a particular fund family.

Computerize. Good personal finance software — Quicken, Microsoft Money and GNUcash are popular — can help you get organized with one record-keeping source.

Go online. You can cut down on clutter by storing some records electronically, or using online tools like mint.com. Likewise, opt for “electronic statements” and get credit card and other bills online, where you can save them as .pdfs and keep paper to a minimum.  Electronic bank statements also allow you to cut down on clutter and keep organized.

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