How Much Paper (Clutter) Do You Need To Keep?

How Much Paper (Clutter) Do You Need To Keep?

Finding out what to toss will help you better organize what you should keep - A records retention guide

Cooler and rainy days this time of year make a good time to organize our financial records and determine what we have, what we can get rid of, and what we should keep.

The first step in this process is to find out what we have on hand. Look into the different “filing systems” we maintain: dresser drawers, kitchen drawers, kitchen cabinets, cupboards, desks, filing cabinets, under desks, lock boxes, safe deposit boxes, cookie jars and under mattresses (or so it seems!)

Next, use this set of guidelines to organize what you need to keep and where to find it. The result will be that you can then identify what you don’t need to keep.

Use a home filing cabinet to store both temporarily and permanently.

Temporary files: Designate a section, drawer or set of folders in the cabinet to be used to organize what needs to be paid and when it needs to be paid. Put all monthly bills and stuff that comes in the mail that ultimately need our attention in this area.

As you pay the bills and give necessary attention to the other matters there, sort them out regularly into those items that must be kept for tax purposes, those that need to be kept for other financial purposes, and those that can be safely discarded.

The records you need for tax purposes should remain in that temporary file section of the filing cabinet until you finish your tax return for the year. When finished with the return, you may discard the records that you didn’t actually need in that process.

Permanent files: Store those records you used to prepare the return with a copy of the return in the “permanent” section of the filing cabinet. Income tax returns and those supporting documents should be retained for at least 3 years after you’ve filed with the IRS and state in case you’re audited.

Some experts recommend that you keep a copy of your return permanently, and not just for the minimum 3 years. That is a personal choice. There are many reasons beyond the scope of this discussion to keep tax returns permanently (such as to prove your income, for divorce and support purposes, for business and investment research purposes, etc.).

Also keep in the permanent files all documents that are used in determining the cost of an asset. Records of stock purchases and stock transactions are critical in determining the cost basis for tax purposes when you sell the shares.

Photocopies of the deeds to your property, closing papers for the purchase of your property, major improvements and additions to your property, titles to your cars, life insurance policies, birth certificates, naturalization papers, marriage and divorce documents, adoption papers, and death certificates need to be kept permanently. (While you want to maintain the originals of these records in a safe deposit box, you may want ready access to such at home. Thus, keep copies here, and note that they are copies and where the originals are located.)

Other permanent files include copies of wills, trust documents, general power of attorney, life support directives, health care power of attorney and similar legal documents.

Also keep permanently receipts for major home improvements and additions which add to the value of your home. These documents should be kept as long as you keep the assets, and then for at least 3 years for tax-supporting purposes.

Insurance policies should be kept as long as they’re in force. (Remember that life insurance policies’ originals belong in the safe deposit box.) Warranties should be held as long as they’re in force or until you dispose of the merchandise.

Save canceled child support, or other support, checks as proof of payment, especially if you’ve gone through a messy domestic situation.

Safe deposit box at a bank: This is the place for the originals of all those documents that are hard to replace, such as birth certificates, naturalization papers, marriage and divorce documents, adoption papers, and death certificates.

Also keep in your safe deposit box: originals of home (and other real estate) purchase records and major improvements and additions, deeds to real estate, titles to cars. Securities and bonds, if they were provided to you in paper form when you purchased them. A video-taped inventory of you household goods and content of your home, just in case you might need them for filing an insurance claim. It’s not a good idea to keep the only copy of such a tape in your home because you need to store this in a fireproof location.

With your attorney: Originals of wills, trust documents, general power of attorney, life support directives, health care power of attorney and similar legal documents should be maintained by your lawyer.

Finally, what can be destroyed? Practically everything not mentioned above!

What about credit card statements? Once you’ve made sure all the charges are valid per your statement, you can discard the individual receipts unless you think you’ll need them for tax purposes. Keep the statements until you file your tax return for the year, and then get rid of them, too.

ATM receipts and bank deposit slips can be tossed after you reconcile your bank statement for that month. It’s a good idea to keep your statements and canceled checks until you finish your tax return for that year just in case you need the canceled checks for tax purposes.