Spring Cleaning Your Personal and Financial Records


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Copyright © 2008-2014
Privacy Rights Clearinghouse
Posted April 18, 2008

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 can't wait to discard unwanted papers.

So what's 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/finance/personal-finance/how-long-to-keep-financial-records.aspx 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. It's too easy for a crook to piece the strips together.

 
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