Retain This!

By Diane Kilner, CPA, Manager

When it comes to deciding which documents to keep and which to toss, there aren’t many hard and fast guidelines, but here are some basic rules of thumb to help you.

With the problem of identity theft increasing every day, our first suggestion is to be very cognizant of any records that contain information that needs protecting, such as your social security number, bank account/credit card numbers, etc. These should either be destroyed (preferably with an inexpensive shredder which you can purchase for as little as $25 for a machine that shreds five sheets at a time), or kept in a safe place such as a safe-deposit box.

A scanner can be very useful as well, allowing you to store tons of receipts and other documentation in a neat, organized, easily accessible manner.

Keep your records retention system as simple as possible. Use a file cabinet or plastic bin at home to store papers that you need to access often, such as banking and credit records, purchase records, investment and financial records, personal and employment records, and housing records. Make sure you choose a storage method that will not expose your papers to potentially damp conditions.

Use a fireproof container in your home to store difficult-to-replace papers that you need occasional access to, such as tax records; health, medical and insurance records; records of bank and credit card account numbers; and estate planning and retirement records. Keep a current backup of data stored on your PC here as well.

Use a safe-deposit box offsite to store important documents that you need to keep indefinitely but seldom need to see, such as personal legal records, property records, life insurance policies, and information related to major investments. Make a list of items in your box to keep at home, so that you know exactly what is there.

Generally, you should keep:

• All income tax returns and supporting documentation for seven years. The IRS has three years to audit you from the date you file your taxes; however they have even longer to challenge
  returns that seriously understate income or that may be fraudulent. It is up to you to have on hand all of the backup information that went into the preparation of your returns. This is where a scanner may come in handy!
• Home and property records for as long as you own the
  property.
• Records related to major purchases for as long as you own them.
• Insurance records for as long as the policies remain in force.
• Household inventories should be updated often and include the item, cost and date of purchase or sale. Pictures can be very helpful when making claim. Keep a copy in your safe-deposit box or with someone you trust offsite.
• Personal health records should be kept indefinitely and should include complete contact information of your personal physicians, your medical history, and your prescriptions and/or treatments prescribed. Any medical expenses claimed on your tax return should be kept for at least seven years from the end of the year in which they are claimed.
• Warranty documents should be disposed of upon expiration or when you get rid of the item covered.
• Home repair bills and contracts should be kept for about ten years in case you need to prove something with regard to guarantees of workmanship.
• Pay stubs: Keep the year-long worth of stubs until you reach the final stub for the year, then destroy the others. Use it to make sure your W-2 is correct, and compare to Social Security statements to make sure you are getting credit for all of your contributions.
• Bank statements: Keep statements for three months if you are thinking about applying for a mortgage; otherwise the bank should have all of your records if a need arises.
• Credit card statements: You may want to opt for electronic statements. Once you’ve reviewed to make sure charges are correct, there is no reason to keep printed statements unless you need them for documentation of major or disputed purchases. Make sure you keep a list of the names and addresses of issuing companies so that you can notify them immediately in case of loss or theft.
• Financial documents: Chances are if you have stocks, bonds, mutual funds, etc., you are inundated with prospectus, privacy notices, address confirmations, and on and on. Don’t keep them unless you plan to act on them within the next two weeks. In regard to various benefit statements, you may want to keep indefinitely in order to determine your future retirement benefits.

Again, keep in mind that any documents that support tax returns should be kept with the appropriate tax return for seven years.
Retention needs may vary from person to person; if you are uncertain, please give us a call and we can help you decide.

Email Diane at Diane_Kilner@mnccpa.com .