Eliminating Financial Clutter

As we draw closer to the deadline for institutions to furnish your annual tax statements, you may be wondering how long you need to keep tax and other financial documentation. Gathering your income tax data is a good time to clean out your filing cabinets and shred your utility bills from 1982 and brokerage statements from 1997.

Tax returns and related documents should be kept for seven years. If the return details a potentially taxable investment, keep it as long as you own the asset plus seven years. I recommend clients use the black binder we give you when you become a client of TAAG to organize your monthly brokerage statements, trade confirmations, and other investment related documentation.

You can shred buy and sell confirmations after you have compared them to your monthly statement. Keep your monthly statements until December and put your December statement in the file with your tax return for that year. If you ever need an historical brokerage statement, we can provide it to you. Most financial institutions are required to keep your statements for seven years. TAAG will track the cost basis for any investment we make in the taxable accounts we manage. Each January we will provide you with the realized gain and loss information you will need for taxes.

You can also use this process with your ATM receipts, deposit slips, and credit card receipts not needed for taxes or a warranty – shred them after comparing to your monthly statement. Canceled checks can be disposed of after a year if not used for a tax related purchase or deduction and your monthly bank statements, after seven years.

Bills can be tossed after six months and monthly credit card statements after a year if not being used for tax purposes.

Records to retain for the longer term include the paperwork from your home purchase – mortgage application, appraisal, deed and your sales contract. You should keep these at least as long as you own your home, longer if you prefer. For tax purposes, make sure you keep records and receipts from any improvements you have made that may reduce your tax bill when the house is sold.

If you have updated your estate planning documents in the past year, make sure to dispose of the outdated versions of wills, powers of attorney or health care directives. If you have recently made changes, please let us know if any of the documents we have in your file have been replaced or accounts should be re-titled.

There are a few documents you need to keep for life, including birth and death certificates, marriage licenses, adoption papers, and divorce decrees. It is best to keep these in a safe deposit box or fireproof safe in your home.

If you set up a system to purge unnecessary records on a regular basis, assembling the needed documentation at tax time will not feel like a chore.

By Chris Carleton, CFP
clcarleton@taaginc.com
www.taaginc.com