Now that tax season is behind you, it’s a good time for spring cleaning to organize essential financial records. People often ask, “What do I do with all these papers? What do I keep and what can I pitch?” Some of us have years of banker’s boxes piled high in the garage avoiding the task. This year, take charge of sorting through your paperwork, identify old statements that can be shredded or thrown away. It is always a good idea to shred anything that contains personal information.

Here’s a quick list to follow: Everyone should have these basic documents available.

Income sources:
  • W-2’s
  • 1099 and K-1’s
  • Bank statements
  • Brokerage statements
General Expenses:
  • Sales slips and receipts
  • Invoices
  • Cancelled checks
  • Charitable contribution letters or receipts
Property Records:
  • Closing statements
  • Purchase and sales invoices
  • Proof of payment such as wire transfer or cashier’s check
  • Insurance and property tax records
  • Improvement expense receipts
Investment Records:
  • Mutual fund and brokerage statements
  • Form(s) 1099, 2439, and K-1

Additional documents might include those related costs and expenses for your home business, square footage dedicated to your work space and storage, and any employee expenses.

You’ll also want to have records of any income from IRA’s and 401(k)s. Some people have made costly mistakes by miscalculating their Required Minimum Distribution (RMD) or forgetting to take it before April 1st following their 70 1/2 birthday. Penalties for under withdrawing can be as high as 50%.

The rules can be confusing. Some qualified plans will allow certain participants to defer beginning their RMDs until they retire, even if they are older than 70 1/2. Qualified plan participants should check with employers to determine whether they are eligible for this deferral.

How Long Should You Keep Your Records?

You must keep your tax records until the period of limitations for the return runs out. That’s the time in which you can amend your tax return to claim a credit or a refund. It’s also the period when the IRS can assess additional tax.

Keep documents relating to property records until the period of limitations expires for the year in which you disposed of the property? These records include any depreciation, amortization or depletion deduction. Keep anything that supports the calculations for gain or loss when you sell or transfer the property.

Here’s a list of records and how long they should be kept:
  • Failing to file a return – keep support records indefinitely.
  • Failing to report income that exceeds more than 25% of the income shown on your return – six years.
  • Owing additional tax but none of the above conditions apply – three years.
  • Filing a claim for a refund/credit after filing your return – three years from the filing date or two years from date tax paid – whichever is later.
  • Filing a claim for worthless securities or bad debt deduction – seven years.
  • Keep all employment tax record for at least four years after the date that the tax becomes due or is paid – whichever is later.

Even if none of these situations apply, it’s advisable to keep copies of your filed tax returns so you can refer to them when preparing future tax returns or amending older ones. You may also need older tax returns if you challenge your Social Security records.

Keep or Shred?

If you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you sold, increased by any money you paid. You must keep the records on both properties until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.

A good guideline is to keep all tax records for at least seven years. Consider scanning these documents, saving them electronically to a disk and storing them securely.

Judith A. McGee is the chair and chief executive officer of McGee Wealth Management, Inc., an independent registered investment advisor. She is a co-branch manager of, and offers securities through, Raymond James Financial Services, Inc. (Member FINRA/SIPC) in Portland. Contact her at 503.597.2222 or Judith@mcgeewm.com.

Download PDF: Keeing Your Financial Records Straight

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