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By Bill Morgan, CPA

Along with blooming daffodils, extra daylight hours and seasonal allergies, warmer weather brings tax filing deadlines AND an opportunity to declutter your home. With both of those in mind, it’s a great time to organize important documents and update records.

As an advanced planning advisor, Bill coaches advisors as they help clients build and implement a holistic financial plan engineered for their specific situation. He works with a team of other professionals as they monitor and stay current on the latest wealth management strategies designed to minimize the impact of taxes on clients’ wealth transfer and retirement objectives.

Bill Morgan

One of the most critical — and sometimes hardest parts — of personal money management is keeping your financial records organized. Whether it's a utility bill to show proof of residency or a Social Security card for wage reporting purposes, there will be times when you need to quickly locate a financial record or vital document. By taking the time to clear out and organize your financial records, you'll be able to find what you need, exactly when you need it. Here are four important points to consider if you should save or shred a document:

What Should You Keep?

If you tend to keep stuff because you "might need it someday," your desk or home office is probably overflowing with nonessential documents. One of the first steps in determining what records to keep is to ask yourself, "Why do I need to keep this?"

Keep documents that are difficult to obtain, such as:

  • Tax returns 
  • Legal contracts 
  • Insurance claims 
  • Proof of identity

On the other hand, if you have documents and records that are easily duplicated elsewhere — such as online banking and credit card statements — you probably do not need to keep paper copies of the same information.

Don’t throw away your receipts! Unbeknownst to many people, numerous purchases require records to be kept. One situation that taxpayers often face is being asked to provide tax cost basis: What did I pay for something and when did I buy it? In the past, when you purchased securities through a custodian or broker, they maintained your basis for you. This can be very beneficial, as you don’t need to keep brokerage confirmations from year to year.

Buyers of cryptocurrency found out the hard way they had to track cost basis themselves which makes tax preparation time quite a challenge. There are many other purchases that taxpayers make where no one keeps the records for them. An example is improvements to your residence necessary to calculate the gain when you sell your home in the future. Those who own collectibles that may appreciate must keep accurate records because selling a collectible in the future at a gain is taxable.

One of the most common records which must be saved is proof of substantial charitable contributions. Generally, for donations of more than $250, you must have a canceled check and a written confirmation from the charity confirming the amount and date of the contribution.

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How Long Should You Keep Your Records?

A good rule of thumb is to keep financial records and documents only as long as necessary. For example, you may want to keep ATM and credit card receipts until you've reconciled them with your bank and/or credit card statement. On the other hand, if a document is legal in nature and/or difficult to replace, you'll want to keep it for a longer period or even indefinitely.

Some financial records may have more specific timetables. For example, the IRS recommends that taxpayers keep federal tax returns and supporting documents for three to seven years after the date of filing. Certain circumstances may even warrant keeping your tax records indefinitely.

Here are some recommendations on how long to keep specific documents:

Records to keep for one year or less:

  • Bank or credit union statements 
  • Credit card statements 
  • Utility bills 
  • Auto and homeowners Insurance policies

Records to keep for more than a year:

  • Tax returns and supporting documentation (keep for at least 3 years after filing the return) 
  • Mortgage contracts (keep until the mortgage is satisfied and you have proof of satisfaction) 
  • Property appraisals (keep for as long as you own that property) 
  • Annual retirement and investment statements (keep annual statements but discard monthly or quarterly reports) 
  • Receipts for major purchases and home improvements (keep for at least 3 years after the property is sold)

Records to keep indefinitely:

  • Birth, death and marriage certificates 
  • Adoption records 
  • Citizenship and military discharge papers 
  • Social Security card

The above recommendations are general guidelines: your personal circumstances may warrant keeping these documents for shorter or longer periods of time.

Out With the Old, In With the New

An easy way to prevent paperwork from piling up is to remember the phrase "out with the old, in with the new." For example, when you receive this year's auto insurance policy, discard the one from last year. When you receive your annual investment statement, discard the monthly or quarterly statements you've been keeping. In addition, review your files at least once a year to keep your filing system on the right track.

Finally, when you are ready to get rid of certain records and documents, don't just throw them in the garbage. To protect sensitive information, you should invest in a quality shredder to destroy your documents, especially if they contain Social Security numbers, account numbers and other personal information.

Where Should You Keep Your Records?

You could go the traditional route and use a simple set of labeled folders in a file drawer. More important documents should be kept in a fire-resistant file cabinet, safe or safe-deposit box. If space is tight and you need to reduce clutter, you might consider electronic storage for some of your financial records. You can save copies of online documents or scan documents and convert them to electronic form. You'll want to keep backup copies on a portable storage device or hard drive and make sure that your computer files are secure. In recent years, cloud storage has gained immense popularity. These services encrypt your uploaded information and store it remotely. If you use cloud storage, make sure to use a reliable company that has a good reputation and offers automatic backup and technical support.

Once you've found a place to keep your records, it may be helpful to organize and store them according to specific categories (e.g., banking, insurance or proof of identity), which will make it even easier to access what you might need.

Decluttering and organizing your personal documents can go a long way in saving you time, preventing extra expenses and keeping your information secure. Not only will you have peace of mind knowing you can easily access important papers, but you can also finally tackle cleaning your garage.

About the author: Bill Morgan, CPA, PFS

As an advanced planning advisor, Bill coaches advisors as they help clients build and implement a holistic financial plan engineered for their specific situation. He works with a team of other professionals as they monitor and stay current on the latest wealth management strategies designed to minimize the impact of taxes on clients’ wealth transfer and retirement objectives. For Bill, the most rewarding aspect of working with advisors is working with them to explore all the facts and design strategies which in turn will ease their clients’ stress of financial decision-making. That starts by leveraging his experience in individual taxation and multi-dimensional critical thinking to help advisors bring true value to their clients. This approach offers a positive tangible result: lower taxes.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. The opinions expressed by featured authors are their own and may not accurately reflect those of the Buckingham Strategic Wealth®. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. R-22-3440

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