By Harvey Amwake, C.P.A.
Confused about managing paperwork? Here are some tips that will help you keep what’s important and toss what you no longer need.
1. Tax records. Keep tax records for at least seven years. Tax records include copies of income tax returns, documents supporting your reported income and deductions (W-2s, 1099s, receipts for claimed deductions, etc.) and proof of timely filing. Although the normal statute of limitations for an IRS audit is three years, the open period will double if the agency believes your gross income was understated by more than 25 percent. This six-year period doesn’t begin at the end of the earliest year filed; it starts at the later of the earliest returns due date or the date it was filed.
2. Miscellaneous. Retain your paycheck stubs throughout the year until you’ve received your W-2 and reconciled it to the stubs. Discard credit card statements after 12 months, unless they support a tax deduction or a major purchase. Keep ATM receipts and bank deposit slips until the transactions show up in your account statement. Do the same with credit card receipts, unless you might return the item or need proof of purchase for warranty or other purposes.
3. Large purchases. Retain records for large purchases as long as you own the items. Records of real estate purchases and improvements should be kept as long as you own the property, plus seven years after disposition. The same is true for records of investments such as stocks and mutual funds, including purchases, dividends, dividend reinvestments, and related expenses.
4. Electronic records. Electronic records are generally considered legally valid, so you can scan tax returns, receipts, and other paper documents and retain them in electronic formats. Store these records as PDFs, on external hard drives, or on a website, but be sure to maintain copies in at least two formats.
Finally, to avoid becoming a victim of identity theft, shred obsolete records rather than tossing them.