Personal records retention policy

Retain Your Records No Longer Than You Must

Excerpt:

According to Catherine M. Williams, vice president for financial literacy at the credit counseling firm Money Management International, there are two main reasons to keep financial records. “It’s either for backup to a tax issue or for proof that you did something like make a payment,” Ms. Williams said.

The Internal Revenue Service requires that individuals be able to produce records proving any income, deductions or credit claimed for at least three years from the date of a return, the statute of limitations for how long the I.R.S. has to assess additional tax if all income was reported correctly. In addition, the I.R.S. requires that individuals be able to produce such records for six years if they fail to report income that is more than 25 percent of their gross income. There is no statute of limitation for failure to file or tax fraud.

Therefore, experts generally recommend keeping anything that verifies the information in your tax return for at least six to seven years. “My recommendation would be never throw away copies of your tax returns and checks made out to the government — anything else, I would say keep for at least six years,” said Jude Coard, a tax partner at accounting firm Berdon L.L.P.

Records that fall into this category include W-2 forms, 1099 forms, other tax reporting statements and end-of-year bank statements that show interest earned. As for brokerage statements, John W. Roth, a senior federal tax analyst with the tax information and software provider CCH, recommended keeping end-of-year statements as well as monthly statements and investment confirmation statements showing how much you paid for an investment and how much you earned for selling it. “The only time when you need to save the monthly ones is if that is where the confirmation is for a purchase,” he said.

In fact, for any asset or investment for which you one day could claim a gain or loss (a home or stock, for example), you need to keep records of how much you paid for the item, the costs of any improvements you made to it and how much you sold it for. Such information needs to be kept for at least six to seven years after the gain or loss is included in a tax return.

Comment: We have a folder in our desk called Current Taxes. The problem is that sometime stuff that is not tax related ends up in this folder. All of our statements are available on-line: 1099's, W-2s, etc. In the lead up to tax time I save all of these to PDFs and upload to Google Docs (and share with Kathee). Because we use Turbo Tax online our taxes (as long as we use this service) are stored by Intuit. After taxes are completed we print off all the documents to PDF and upload to Wells Fargo VSafe. One issue for us has been cost basis for stock purchases. We are closer to having all of this resolved by having all of our stocks at Wells Trade.