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Spring Cleaning and Organizing your Financial Documents

Tara A. Conti, CFP®

Yes, it is tax time.  Many of you are going through your papers looking for needed documentation and are upset with your accountant (TurboTax^®) or yourself.  Why?  Because you procrastinated till the last minute and then realized you don’t have the documentation that you need to file your taxes.

We recommend that you create a tax folder each year.  Put all of your tax documents that you need and receive for the designated year in this folder.  When each document comes to you, put it in this folder.  At year end all of your tax documents will be in one place ready for when you have to prepare your taxes. 

We see a common issue with missing cost basis needed to file taxes on investments sold in the past year that were bought possibly many years ago. 

I can relate to all of the above. 

Even though this is what I do for a living, it is easy to get bogged down with the papers you get.

I am often asked:

• What papers and information do I need to keep? 
• How long do I need to keep this information? 
• Do you have any recommendations for how to organize my financial information?

There are various kinds of documents that I put in different categories. 

1. Important and Permanent Documents

These documents are ultra important and you want to keep them forever. We recommend keeping them in a secure accessible place like a fireproof box or safe.

The documents that fall in this category are:

• Birth certificates
• Marriage certificates
• Separation and divorce agreements
• Real estate deeds, vehicle titles and property surveys
• Military records
• Current passport
• Stock certificates (more and more rare)
• Citizenship or naturalization papers
• Social Security cards (do NOT carry these around in your wallet)
• Family health and immunization records
• Proof of paid off loans (mortgage, student or auto loans)
• Will, Living Will, Health Care Proxy, and Durable Power of Attorney (only keep the newest version, since multiple versions can cause confusion)

Accessibility is important
I know several examples where clients have put their legal documents (especially their living will or durable power of attorney) in a safe deposit box and then when they needed it QUICKLY, the bank was closed for the weekend and they did not have access to these documents when they needed them most.

2. Income Tax Documentation

You should save your previous tax returns and all the supporting data documentation for seven years to be conservatively safe. The IRS has three years to challenge anything but if they think you did not fully report all income they can challenge your returns for the past six years.

Please note there is no time limit on income tax documentation if you fail to file or if the IRS suspects fraud of any kind.

The supporting income tax documentation you should retain depends upon what applies to your situation. This may include but is not limited to:

• Charitable contribution documentation
• Employee business expense documentation
• Health care receipts if you have a health savings account (HSA)
• Medical expense records
• Utility bills for home office deductions
• Year end paystub and W2
• Buy and sell trade confirmations for investments sold during that tax year
• Non-deductible contributions to employer sponsored plan or IRA
• Expense receipts or cancelled checks in support of tax deductions taken

We recommend that you keep supporting documentation with the applicable year’s tax return.

3. Investment Documentation

Buy – Sell Trade Confirmations
You want to keep all “buy” trade confirmations until you sell the investment so you have the investment’s cost basis. This is needed to appropriately report your income taxes after a sale in a taxable account has occurred. Most brokerage firms keep this information for you. Be aware that if you transfer accounts the cost basis may or may not come with the investments when you transfer them.

Investment Account Statements and Retirement Plan Information
Keep your statements and verify the information for trades until you receive or download the annual year end summary statement. Not all firms have an annual summary with the details of the year. If yours does, you can then throw away the other statements at the end of the year.

Non-deductible contributions to a Traditional IRA or Roth IRA Conversion
Be sure to keep the IRS form 8606 for non-deductible deposits or a Roth conversion until you start withdrawing money from your IRA. Then you can easily prove that you paid the taxes on these contributions and / or conversions.

Annuities
We recommend that you keep the Annuity Policy and supporting documentation for future reference. At some point, you may want to know what your choices and investment options are and what the surrender costs may be.

4.Various other Bills and Monthly Statements

To simplify your record keeping, only keep deposit slips and ATM receipts until you verify them on your bank statement, and then shred them.

After verifying and reconciling the information on your bank statements, keep bank statements for one year unless you are planning on applying for a mortgage, home equity loan or car loan. Banks are requesting a lot more documentation for loans these days.

Most online banking will have a six month history of checks and statements. We recommend downloading copies of these for your records since you often have to pay to receive a copy of cancelled checks and statements if they are no longer online.

Credit Card receipts and statements do not need to be saved except for store returns, tax documentation, or to verify large purchases for warranties or home owners/renters insurance.

Utility Bills should be kept for at least a year to verify payments and any billing issues.

It is recommended that you keep paystubs until you can verify your yearend paystub and your W2. After verifying, you can get rid of all paystubs for the year. Keep the last paystub and W2 for tax documentation purposes.

5. Insurance Policies

Property and Casualty Insurance Policies
We recommend that you keep a copy of each current property and casualty insurance policy (home owners, renters, automobile, excess liability insurance policies) in a separate folder and in an easily found and accessible location. These policies can be lengthy and are usually updated each year. Shred previous year policies that have expired, lapsed or been replaced so you only have the current policy.

Life Insurance Policies
Keep the documentation for all life insurance policies until there is no opportunity for reinstatement of the policy. This paperwork should include the policy number, the insured, the owner, the benefit amount and the beneficiaries. You may discard premium receipts (the cancelled check) after verifying that the payment has been reflected on the statement.

Long Term Care Insurance
Keep your long term care policy until no longer applicable, lapsed or expired.

Health Insurance Policies
We recommend that you keep the information for your health insurance policy easily accessible so you know what is covered and the process for specialized care/coverage. Throw away previous health care coverage documentation that has expired, lapsed or been replaced. This documentation generally changes each year.

6. Warranties and User Manuals

Have a file for current valid warranties and a separate one for user manuals.

I have to admit I usually look up user manuals on the internet and find exactly what I need. For those items that you want hard copy manuals (camera, cell phone, dishwasher etc.) keep all of them in one place for your convenience.

In Summary

Many of us keep much more documentation than we truly need and it is not always the right documentation.

The old, outdated and unnecessary documents that you can get rid of should be SHREDDED. Protecting yourself from identity theft is extremely worthwhile. Too many horror stories abound.

Keep separate labeled files for each category and each account for ease of filing and finding information.

I cannot over-emphasize enough-

1. Be sure to keep the important and permanent documents and seven years of tax returns and supporting documentation.
   
   
2. Get rid of and shred outdated and non-applicable documents.

Having the documents you need and being able to find them easily saves you time, space and energy. NOT having what you need causes A LOT of frustration and can cost A LOT of time, money and energy so make the time to get your financial documents organized and cleaned out.

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