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  • Writer's pictureSteve Coker, CFP

What documents should I keep?

While it seems like a mundane question, “What documents should I keep?” is one of the most common questions I hear, and it is far from trivial. The reality is that even in today’s electronic world you may be required to provide documentation to support tax and financial records, and you may not always be able to rely on your employer, bank, or broker, to keep those records for you. The stakes are also high since failure to provide documentation for your tax return, home purchase, or other financial transaction can be costly. As a result, many of my clients take the approach of keeping everything, leading to mountains of paperwork to sort through. Ironically, having too much paperwork can make it impossible to find the actual document you need. To help with this very real dilemma allow me to provide some basic guidelines of what to keep and what to throw away.

· Tax documents

  • I recommend that you keep tax returns and supporting documentation for minimum of 7 years. While there is a general statute of limitations of 3 years for the IRS and 4 years for California, there are also many exceptions that could extend the examination period to 6 years, and in very rare cases longer. Remember, you must keep more than just the tax return, you must also keep the supporting documentation, such as W-2’s, 1099’s, and receipts. I create a file for my return each year and drop the return and supporting documents into the same filing cabinet.

  • Some tax support must be kept even longer Unfortunately, there are some exceptions to the 7-year rule, and they can be common. Here are a few tax-related documents that should be kept in a permanent file: - Documentation on inherited assets or taxable gifts. This includes forms 709, 8971, and 706. Documentation for the step-up in basis of inherited assets or the remaining gift or estate tax exemption for taxable gifts. - Documentation on taxable contributions to an IRA, or Roth IRA conversions. Form 8606 documentation should be retained to prove the taxable basis until all distributions of the IRA have been made. This often means these documents must be maintained for life. - Documentation supporting improvements on your home or rental property. Investment in your property can increase your basis and reduce your taxable gains upon sale of the property. It is important to maintain records of those expenditures for as long as you hold the property.

· Brokerage Information (e.g., Charles Schwab)

  • Prospectuses do not need to be kept. Once you have reviewed these documents (or not) there is no reason to keep them.

  • Trade Confirmations do not need to be kept. Trade confirmations detail each trade. Since this information is summarized on the monthly statement there is no reason to keep the detail.

  • Account Statements. The primary reason to keep your account statements is for basis information. Effective January 1, 2011, brokers were required to start tracking this information for you, so there is little reason to keep all your account statements. I suggest keeping the monthly statements until the end of the year and then keeping only the December 31st statement for historical purposes.

  • 1099’s. At the end of the year your broker (e.g., Schwab) will provide a tax statement detailing the taxable transactions for the year. I recommend that you keep this information with your tax return for that year and retain it consistent with your other tax return support.

· Bank Statements and Monthly Bills

  • Unless you are claiming a tax deduction or have a dispute, bank statements and monthly bills can be thrown away every year. This list includes credit card statements, utility bills, and recurring expenses. If you are claiming an expense on your tax return, then include the related receipts or statements with the tax return support.

· Medical Expenses

  • There are two key reasons to keep medical expenses. First to retain documentation for insurance reimbursement and secondly to retain documentation of any medical tax deduction. I typically recommend maintaining medical expenses for a year and then placing those receipts with the tax return.

· Property Transactions

  • Real estate transactions. Transactions for real estate should generally be kept in a permanent file. This is certainly the case for properties that you currently own so that you can substantiate your ownership, but also applies to properties that you have sold just in case there are subsequent tax or legal questions surrounding the sale.

  • Mortgage Documents. Mortgage documents should generally be kept in a permanent file. Again, the current mortgage should be kept substantiating the terms of the loan, but paid-off mortgages should also be kept to document the pay-off and provide key information in the event of future questions.

· Insurance Policies

  • Insurance policies for all current policies (e.g., homeowner’s, auto, health, disability, and life) should be retained for the life of the policy.

· Legal Documents

  • Trust. Your trust and will and related documents should be kept permanently. This includes old versions of these documents though most attorneys recommend writing “Superseded” at the top of any old documents just to make sure that your family is clear on the most recent document.

  • Birth Certificate/Marriage License/Social Security Card. These key, identifying legal documents should be kept in a permanent personal folder.

· Military, College, and employment documentation

  • Military discharge paperwork, College Transcripts, and other key employment information such as employment agreements, release of liability, or non-compete agreements should be kept in a permanent personal file.

· Physical or Digital Storage

  • Notably the IRS has made clear that digital records are adequate. I hope this relieves a lot of storage in your garage!

  • Key legal documents such as trust, will, birth certificate, marriage license, social security card, escrow documents, mortgage documents, and other legal agreements should generally be kept in physical form.

While the above list is not comprehensive, I hope that this list provides guidance on the bulk of the information that you are receiving each year!


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