Friday, May 14, 2010

Paper Records - What to Do?

You can get rid of most documents and go digital with the rest. Some of you may have a stash of boxes or a file cabinet stuffed with old bank statements, tax returns, pay stubs and other paperwork you didn't even know you had! Since you most likely just completed your tax return, now is the perfect time to clean house. With a few exceptions - mainly tax-related documents - you don't need to keep all those papers. If you are willing to use online banking and create digital files of crucial records, you may even be able to go paper-free - good for you and the environment too!

What to Keep:
1. Annual Tax Returns. Keep the returns forever, but get rid of supporting docs after 3 years which is how long the IRS has to initiate an audit. Also save for 3 years any thank you letters from charities that were reported on your tax return.
2. Investment Statements. Save your year-end statements to make sure they match up with your monthly mutual fund reports. Then toss. Also be sure to keep records that show the initial purchase price for stocks and mutual funds so you can calculate your basis when you sell. Then, you can shred after the 3- or 6-year IRS window.
3. Home Records. Save anything pertaining to purchase price and home improvements for as long as you live in the house. These will come in handy when you sell. After you sell your home, keep the docs for 3 years.
4. Retirement Records. Hold on to documents showing how much money went in and came out of your IRAs and 401(k)s - especially if you made nondeductible contributions - so you don't overpay taxes when you withdraw the money.

You Can Toss:
1. ATM receipts, bank withdrawal and deposit slips, and credit card receipts.
2. Pay stubs. Keep them until you get your Form W-2, verify and then shred.
3. Most monthly bills. Shred credit card statements, utility bills and other misc statements unless you need them for tax purposes (ie, claiming expenses for a home office).

Before you start throwing papers away, be sure to invest in a paper shredder to guard against identity theft. And don't skimp - the cheapo, ribbon-cut style produces bands that can be taped back together. Instead, go for a cross-cut or confetti model for about $100. (The Fellowes Powershred DS-2 looks cool and works well too).

exerpt from Financially Fit

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