Clearing the paper clutter at year end: What financial stuff to hold onto and what to shred
A good New Year’s resolution is to clear the clutter — the financial papers — you no longer need as another year ends and a new one begins.
If you own a business, plan on keeping tax records for three years (or seven years if you’re filing for a bad debt deduction). Keep employment tax records for four years. Files on employees should be retained for at least seven years after an employee leaves.
Bank statements (both business and personal)
Get rid of bank deposit slips and ATM receipts once you’ve reconciled your statement. You need to keep the statement if you’re paying bills online — and especially if any of those bills are going toward tax deductions. Your bank statement is really the only record of online transactions. Keep them for three years.
Keep your tax returns, both corporate and personal, for seven years. Toss your supporting documents three years after you filed your taxes. You’re usually safe from being audited after that time, unless you forgot to report a big chunk of your income. If you have self-employment income, keep the records for at least six years.
Mutual funds and stocks
Keep records showing what you originally paid for investments until you sell them, and report the gain or loss on your taxes. Hold on to your year-end statements showing how much you received in dividends or capital-gains, so you won’t end up paying taxes on them twice. Toss your monthly statements if everything matches up with your year-end report.
IRA contributions and 401(k)
If you made a non-deductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw. Keep the quarterly statements until you receive the annual summary. Keep the annual summaries until you retire or close the account.
Even though most homeowners can keep their home-sale profits tax-free, it’s important to keep home improvement receipts for as long as you own the house. You could end up paying a tax bill when you sell your home if you have lived in it for less than two years or if you end up renting it, or if you end up with more than $250,000 in profit if single or $500,000 if married. All home improvements that add value to your home (not just regular repairs) can lower your tax bill.
Throw credit card receipts away if they’ve appeared on your credit card statement, after making sure they match your statement. Keep credit card statements, both business and personal, for three years.
Never throw away birth or death certificates, marriage licenses, military discharge papers, loan discharge notices, or Social Security cards.
When you toss
Financial information can be very valuable to thieves, especially papers that have credit card numbers and Social Security numbers on them. Shred your documents when you no longer need them.
Where to store
A fire-proof safe is a good idea for storing your will and important financial documents. Make sure your power of attorney or designated family member knows how to access your safe.
Lauri Droster, CFP, MBA, is branch director at RBC Wealth Management and senior vice president of The Droster Team.
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