How to Organize Your Records for the New Year

If you, like many other people, have resolved to get more organized in 2019, your financial records are a good place to start. Some files are important to keep indefinitely, while others can be shredded or deleted.

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The following guidelines will help you get started on improving your document retention process.

Tax Records
As a basic rule, the IRS usually has three years after you file your federal tax returns to audit you. If the IRS suspects that you underreported more than 25 percent of your gross income, that timeframe increases to six years. It is a good idea to keep copies of your returns and supporting documentation for seven years.

Loans and Property Records
Keep documents related to mortgages and other types of loans, such as student loans or car loans, until the loan has been paid off. Titles for automobiles should be kept until the vehicle is sold.

Homeowners should keep all files related to the purchase of the home for at least six years after the home is sold. In addition to their mortgage documentation, homeowners should retain records of additional purchase expenses such as legal fees, real estate commissions and receipts for all costs related to substantial improvements made to the home. Amounts paid for these expenses and improvements are added to the original purchase price, then subtracted from the sale price to calculate profit when the home is sold.

You should keep quarterly brokerage statements until you receive the annual summary to make sure the amounts match. The annual statement should be kept for seven years in case it is needed for tax purposes. If you own stocks, bonds, mutual funds or other investment vehicles, keep the purchase confirmations until the investments are sold so that you can establish your cost basis and holding period.

It is not necessary to hold onto past insurance records for property and liability policies (home, auto, umbrella, etc.). Documentation for the current policies in effect should be retained until the new ones are received. 

For continuous insurance policies (life, health, disability, long-term care, etc.), the records should be kept until the coverage is cancelled. If any insurance-related expenses are claimed on your tax returns, those records should be kept for seven years with your tax files.

Paycheck Stubs
As a general rule, pay stubs should be retained for at least one year so that you can verify the information on your annual W-2 form provided by your employer. Your W-2 should be kept with your tax records.

Banking and Credit Card Statements
You should check these statements and reconcile them against your own records each month before disposing of them. Any documentation related to taxes, business expenses, home improvements or anything else that may have long-term importance should be kept with your other files for those items.

Other Bills and Receipts
Any documentation for expenses that can be claimed as tax deductions should be kept with your tax files for seven years.

Receipts for large purchases (cars, jewelry, antiques, appliances, furniture, computers, electronics, etc.) should be kept as long as you own the item as proof of value in case you need to file an insurance claim for loss or damage. The receipts may also be required for warranty coverage.

Please contact Grossman Yanak & Ford LLP at 412-338-9300 if you have questions or need assistance.

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