If you haven’t been organized up to now, I’m going to bet that getting ready for tax time has traditionally put a big strain on you and possibly on your relationships as well. Surveys show that the average American spends nearly thirty hours tracking down, figuring out, filling out, and mailing off tax forms. Once the April 15th deadline has been met, a new kind of confusion infiltrates many American homes. “What can I safely toss or shred?” “And what exactly do I need to keep? And for how long.” Here’s a sample of the guidelines you’ll find in “One Year to an Organized Financial Life.”
1. Tax backup material:
This is material that supports the most common tax deductions and must therefore be saved. It includes:
Investment papers that confirm the purchase, sale, or transfer of your holdings.
Monthly finance-related statements, including those from your broker, mutual funds, 401(k), and all other retirement plans as well as your children’s college savings plan.
Monthly bank statements. The IRS can check these for income you may have forgotten to declare.
Credit card statements (if they include deductible purchases for which you have no other receipts).
Utility and phone bills, if they are deductible (which they could be if you run a home business).
2. Documents that are safe to shred.
Credit card statements if the purchases are solely personal and not deductible. Shred them after your payment has been credited. If there is a purchase dispute, hold onto the statement until the dispute is resolved. And remember that most statements are available online for up to a year or more with most financial institutions.
Shred monthly or quarterly statements after you have received your year-end statements.
Utility and phone bills if these are not deductible. Shred them after a month when you see that your payment has been credited).
ATM receipts and deposit slips can be shredded after you reconcile your bank statement.
Any paperwork that duplicates files you have safely stored online. You can always generate a printout if you need one.
3. Old tax forms and backup materials.
Uncle Sam may want you but not all your backup paperwork. At least not forever, thank goodness.
Save the Federal and state tax returns you file forever. Copies are always helpful as guides for future returns or amending previously filed ones. And in case the IRS claims you failed to file, you can easily prove them wrong.
Hold onto backup material for at least three years beyond the date you file your taxes. Most audits happen within three years. Keeping backup files for up to six years is better because the IRS can audit you beyond three years if fraud is suspected. (No state requires record retention beyond six years so you are covered on this front.)
As for state returns, every state has a different time frame for how long you need to hold onto state-tax related receipts. In California, for example, this time period is four years.
You’ve probably heard the old saying: ‘Knowledge is power.’ These tips can take the confusion out of dealing with the potential mountain of paper that can accumulate at this time of year if you decide to save everything. Because tax laws are ever changing, don’t hesitate to ask your CPA, tax attorney or tax preparer if these guidelines are still current.
CLICK HERE To Download “How To Organize Your Home Office – Part One” by Regina Leeds
Click Here TO Download “How To Organize Your Home Office – Part Two” by Regina Leeds