MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
FINANCIAL RECORDS: WHAT TO KEEP AND FOR HOW LONG
(January 3, 2006) — Personal financial records are a necessary part of our lives, but it’s easy to get overwhelmed by the volume of papers that can accumulate. According to the Virginia Society of CPAs (VSCPA), January is an excellent time to get your financial records in order. Here is some advice to help you determine what you should keep and what you should purge from your files:
Personal papers you should safeguard for your family include birth certificates, Social Security cards, marriage certificates, divorce decrees, insurance policies, Veteran’s discharge papers, wills, living wills and powers of attorney, real estate deeds and mortgages, automobile titles and other important contracts. These and other permanent records that are difficult to replace should be kept indefinitely, preferably in a safe deposit box. You’ll need them to reestablish your financial life in the event of a fire, theft or other disaster.
What often determines the records you need to keep — and for how long — is whether they are related to your tax return. You should save tax-related documents, such as receipts that support your deductions, a minimum of three years after you file your original return. Under normal circumstances, the Internal Revenue Service (IRS) has three years from the date you file to audit you.
If you omit an amount in excess of 25 percent of the amount of gross income stated in your tax return, the statute of limitations extends to six years. There is no time limit if you failed to file a return or filed a fraudulent return.
Checking Account and Credit Card Statements
Once you have reconciled your checking account statement, you may discard it, unless it shows deductible expenses. If so, you should retain your statements and canceled checks for at least three years after you file. The same holds true for credit card statements. You can discard bank deposit slips and ATM receipts after you verify the transactions on your statement.
Investment Account Statements
Monthly or quarterly investment statements can be shredded once you get your year-end statement and confirm that it accurately recaps your transactions for the year. Keep trade confirmations, showing the purchase and sale of mutual funds and stocks. These records should be held for three years after you report the capital gain or loss on your tax return.
Retirement Plan Statements
Keep your quarterly statements from your retirement plans until you receive your annual summary. Once you’ve compared the information, you can toss the quarterly statements. If you make nondeductible IRA contributions, keep the records to prove your cost basis when it comes to receiving distributions.
Keep pay stubs until you’ve reconciled the totals with your Form W-2. If the amounts match, you can destroy them.
Unless you need them to support the home office deduction, you can generally dispose of utility, phone and cable bills once you have paid them.
Home Improvement Records
Even though most home sale gains may be tax-free, it’s still a good idea to hold onto your original purchase contract and receipts for major home improvements. You could potentially face a tax bill should you need to sell a home you have lived in for less than two years, or if the sale of your home results in a gain of more than $500,000 for joint filers ($250,000 for single filers).
Receipts and Warranties
Receipts for major purchases and warranties should be kept for as long as you own the items. Receipts can be useful in proving the value of property that is lost or damaged.
Check with a CPA [and CERTIFIED FINANCIAL PLANNER™ professional]
CPAs agree that you should review your financial records at least once a year and carefully discard what is no longer necessary or relevant. With identity theft on the rise, the best advice is to invest in a paper shredder and use it to destroy all documents with personal identifying information.
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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