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Alert: “Spring Cleaning”
Your Personal and Financial Records
Now that tax season is over, many people are wondering which
personal and financial records they need to save for tax
and other purposes. Some of us are packrats and like to
save everything forever. Others canít wait to discard
unwanted papers.
So whatís the best way to decide whether to save or discard a
record? Here are a few tips and information sources to help
you decide what records you need to keep and for how long.
How long should you keep tax records? The IRS has 3 years in
which to audit your income tax return. However, this limit
does not apply if you failed to report more than 25 percent
of your gross income (the limit then is 6 years). There are
no time limitations if you filed a fraudulent return or if
you failed to file a return.
You don't have to keep everything for tax purposes. For
example, you can throw away pay stubs after you check them
against your W-2 Form. However, you should save any cancelled
checks or receipts that relate to an entry on your tax return
or a potential future tax return (such as when you sell property
at a capital gain or loss). For example, keep receipts for
home improvements until you sell your home, since certain expenses
can lower the capital gains tax that you might have on your profits.
For a complete guide to tax recordkeeping, see IRS Publication 552,
Recordkeeping for Individuals at http://www.irs.gov/pub/irs-pdf/p552.pdf or call 1-800-TAX-FORM (800-829-3676) to obtain a free paper copy.
Before you discard anything that you are not sure about, double check
with your accountant, attorney, or tax preparer. You can also call
the IRS for free assistance at 1-800-829-1040.
If your state has an income tax, you should also check with your
stateís taxing authority to see if they require you to hold your
records for a longer period of time. For example, in California,
the Franchise Tax Board can issue a tax assessment for up to 4 years
after the tax returnís filing date or due date. As a practical matter,
this means that California residents would need to hold onto their
records for an additional year beyond the federal requirements.
Every household also has important records that are not related to
tax filing. Many of these records should be kept indefinitely.
Some of these records should be kept in a safe deposit box. Examples
include birth certificates, marriage certificates, divorce and
adoption papers, citizenship records, and military service papers.
In addition, any papers that serve as proof of ownership should
be saved until the asset is sold. This would include such papers
as deeds for real estate, other mortgage papers, automobile titles,
bonds, and stock certificates. If you have lost any birth certificates,
consider applying for replacements before there is a pressing need.
You can find out where to obtain replacements at
http://www.cdc.gov/nchs/howto/w2w/w2welcom.htm
Thereís a short, but handy guide describing how long to keep financial
records at http://www.bankrate.com/brm/news/mtg/20000518h.asp For a
more comprehensive guide to keeping family and household records,
including what to discard, what to put in a safe deposit box,
household inventory records, and home files, see
http://www.pueblo.gsa.gov/cic_text/money/keeprecords/keeprecords.htm
One final, but important tip. After determining which personal papers
you wish to discard, be sure to shred any that contain personal
information. Always use a cross-cut or confetti shredder. Never
use a strip shredder. Itís too easy for a crook to piece the
strips together.
Privacy Rights Clearinghouse
Contact: bgivens@privacyrights.org
www.privacyrights.org
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