A column on personal finance prepared by the Virginia Society of Certified Public Accountants
A CPA’S GUIDE TO SMART RECORDKEEPING
(December 22, 2003) – In the event of a personal or financial emergency, having organized records will save time, money and frustration. According to the Virginia Society of CPAs, the key is knowing what to keep, where to keep it, and for how long. Here’s some guidance to help you get and stay organized in 2004:
Locate and Store Vital Documents
Documents that are difficult to replace, such as birth certificates, marriage licenses, divorce decrees, records of military service, citizenship papers, and adoption records, should be kept in a safe deposit box at a bank. For added protection, you should retain a list and photocopies of the items that are stored there. An alternative is keeping documents in a home safe that carries a UL class 350 fire resistant rating.
Passports, social security records, and stock, bond, and mutual fund certificates should also be stored securely, as should property records including deeds, titles, mortgages and other real estate related documents. Wills and insurance documents should also be kept in your safe deposit box, but be sure to keep copies available and let your executor or next of kin know that your will is there.
Keep Active Files Close at Hand
Keep items that you refer to regularly, such as bank, mutual fund, and other investment-related statements, close at hand. You’ll also want to store all your utility, credit card, lawn maintenance, property tax and other bills in a readily accessible place. Be sure to carefully categorize all bills and invoices so you can easily find them.
What to Stash and What to Trash
CPAs say that the nature of the document determines how long it should be kept. For example, old utility, credit card, and other bills can be discarded once you have verified that they are correct. And there’s no need to keep car titles or most other property documents once you’ve disposed of the item.
If your mutual fund company or brokerage house provides a year-end summary report of your transactions, there is no need to keep monthly or quarterly statements once you’ve checked that they are accurate. However, hold on to all your buy/sell trade confirmations, since they contain information needed for completing your tax return and retain indefinitely records documenting retirement plans and individual retirement accounts.
Tax records, such as federal and state income tax returns and supporting documentation should be kept at least six years. Here’s why: in general, the IRS has three years from the time of filing to assess additional taxes. If you’ve substantially underreported income (omission of over 25 percent of gross income), the IRS has six years to audit your returns.
It’s a good idea to keep pay stubs until year-end to compare with the amounts shown on the w-2 form from your employer. Other records, such as last year’s tax and bank records, can be stored in an inactive area. Keep canceled checks for as long as you might need proof that payment was made. Canceled checks that support income tax deductions should be held as long as the returns themselves.
Keep a List
Finally, CPAs suggest that you keep a list of all items and where they are
stored. Maintain a copy of the list at home as well and give one to a friend
or relative who can locate the items in an emergency.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
Lifetime Financial Planning, Inc.
Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional
2325 Dulles Corner Boulevard, Suite 500, Herndon, Virginia, 20171
208 South King Street, Suite 201, Leesburg, Virginia, email@example.com
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