Time for Some Spring Financial Cleaning - Getting Rid of Financial Clutter
One of the keys to financial success is being organized. It is an empowering experience knowing where all your paperwork is and easily locating an important document within minutes. To help you get started, we’ve provided you with a list of what you need to keep and what you can get rid of.
This is a great time for some spring financial cleaning to put you on the path towards financial success.
What to Keep for 1 Year
- Paycheck stubs – you can get rid of once you have compared to your W2 & your Social Security earnings statement
- Utility Bills – throw out after one year, unless using them as a deduction for a home office – then you need to keep them for 3 years after you’ve filed your tax returns.
- Cancelled Checks – unless needed for tax purposes
- Bank Statements – unless needed for tax purposes
- Quarterly Investment Statements – hold onto until you get your annual statement
What to Keep for 3 Years
- Income Tax Returns – keep in mind that you can be audited by the IRS for no reason up to three years after you filed a tax return. If you omit 25% of your gross income, that goes up to 6 years and if you don’t file a tax return at all, there is no statute of limitations
- Medical Bills and Cancelled Insurance Policies
- Records of Selling a House – needed for documentation for Capital Gains Tax
- Records of Selling a Stock – needed for documentation for Capital Gains Tax
- Receipts, Cancelled Checks and other Documentation that Support Income or a Deduction on your Tax Return – keep for 3 years from the date the return was filed
- Annual Investment Statement – keep for 3 years after you sell your investment
What to Keep for 7 Years
- Records of Satisfied Loans
What to Hold While Active
- Insurance Documents – Homeowner’s Insurance and Auto Insurance Policies until new renewal arrives, then throw out
- Stock Certificates
- Property Records – including original Settlement Statement from when you purchased the home, as it shows closing costs and settlement fees paid. These maybe added to the cost basis calculation when you go to sell your home.
- Stock Records
- Records of Pensions and Retirement Plans
- Property Tax Records Disputed Bills – keep until the dispute is resolved
- Home Improvement Records – hold for at least 3 years after the due date for the tax return that includes the income or loss on the asset when it’s sold
- Tax Returns – You may want to keep your tax returns indefinitely. The IRS destroys original 1040s after 3 years, but you and your heirs may need information from the returns at some point in the future.
- Marriage Licenses
- Divorce or Separation Agreements
- Birth Certificates
- Death Certificates
- Social Security Cards
- Living Wills and Advanced Medical Directives
- Estate Documents
- Powers of Attorney
- Records of Paid Mortgages
A Word About Home Improvement Records and Cost Basis
If you plan to sell your current home at any time in the future and you have made home improvements that add to the value of your home, you should keep all your sales receipts for items purchased for the improvement, (like a sink and the hardware to install the sink), credit card statements showing purchases if no receipt, and checks to contractors. When you go to sell your home, you will need to establish a cost basis, which is the original cost of the property, plus any improvements made by you, the owner. You will want to keep these records for at least 3 years after the due date for the tax return year that you sold your home in.
Improvements can be items such as:
- Remodeling the interior of the home
- New roof or deck
- Installing utilities on a building lot (new well or septic)
- Numerous other improvements performed by the owner, see IRS.gov for more details