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    Keep It or Shred It? A quick and easy guide to organizing your personal and business documents.

    Spring has sprung.  The winter coats are put away and, if you’re like me, you’ve spent some time purging closets, pulling weeds, and generally organizing the house.  There’s just something fulfilling about cleaning out the “winter” of our lives.

    Similarly, it’s time to “spring clean” our records.  April is Records and Information Management (RIM) Month, which is celebrated around the world by organizations to promote promote good record keeping and information management, and to emphasize the importance of having organized records.  Not only that, but since we’ve just finished tax season, our financial documents are right at our fingertips, and they may as well be organized, both for you and your loved ones should you become ill.  So say goodbye to that spare bedroom in your home that’s decorated with boxes full of old bank statements and pay stubs.  It’s time to purge -- smartly.

    With a few key exceptions -- mainly tax-related documents -- you don't need to keep all the paper.  Before you dig into those piles of records and statements, invest in a shredder to guard against identity theft.  Don’t skimp on the shredder, or you'll defeat the purpose of having one. Ribbon-cut models produce bands that can be taped back together; a cross-cut or confetti model is much better.

     

    PERSONAL DOCUMENTS

    Keep for less than a year

    ATM, bank-deposit, and credit-card receipts until you reconcile them with your monthly statements.  Shred the paper documents or securely trash electronic files unless you need them to support your tax return.  

    Keep for a year or more:

    • Loan documents until the loan is paid off.
    • Vehicle titles for cars you currently own.
    • Investment purchase confirmations of stocks, bonds, mutual funds, etc. until you sell the investment so you can establish cost basis and holding period. (If that information appears on your annual statements, you can keep those instead.)

    Keep for three years

    • Tax records, electronic and paper.  (Please keep in mind that you can be audited by the IRS for no reason up to three years after you filed a tax return. If you omit 25% of your gross income that goes up to 6 years and if you don't file a tax return at all, there is no statute of limitations.)  Use your judgement.
    • Medical bills and cancelled insurance policies.
    • Records of selling a house or stock (to document Capital Gains).
    • Receipts, cancelled checks, and other documentation that supports income or a deduction on your tax return.
    • Annual investment statements.

    Keep for seven years

    • Records of satisfied loans

    Keep forever

    Essential records such as birth and death certificates, marriage licenses, divorce decrees, Social Security cards, and military discharge papers should be kept indefinitely. Also hold on to defined-benefit plan documents, estate-planning documents, life-insurance policies, and an inventory of your bank safe-deposit box (share a copy with your executor or your attorney).  Hold onto records of paid mortgages forever.

    BUSINESS DOCUMENTS

    Keep for four years

    Employment tax records should be kept for a minimum of 4 years after the date those taxes were due or were paid, whichever is later.  These employment tax records include such items as your EIN, amounts and dates of wage, annuity and pension payments and tax deposits, the names, addresses, social security numbers, dates of employment and occupations of employees, records of allocated tips, and fringe benefits.

    Keep for seven years

    • Business income tax returns and supporting documents. (Typically the IRS can come after your business for failing to report income for up to 6 years after your filing if the amount is greater than 25% of your business’ gross income.  If you filed for a deduction for a bad debt or worthless security, 7 years is also recommended).
    • Accounts payable/receivable ledgers
    • Invoices
    • Expense reports
    • Human resource files, unless the employee suffered an accident where workers compensation was paid (in that case save the file for 10 years.  Information for applicants not hired can be disposed after 3.
    • Cancelled checks
    • Bank account and credit card statements.

    Keep forever

    • Business ledgers and other key documents. CPAs tend to be a conservative group and will often recommend that businesses keep their journal entries, profit and loss statements, financial statements, check registers and general business ledgers permanently. Similarly, major business documents, like annual reports, corporate by-laws and amendments, Board of Director information, annual meeting minutes and business formation documents, should also be retained on a permanent basis.

    Special Note

    • Business Asset Records. If business property is involved, the IRS recommends retaining your records until the period of limitations ends from the year you disposed of that property. These records will aid you in calculating applicable depreciation, amortization or depletion deductions and to determine any gain or loss on that property. If the business property is real estate or a vehicle, keep the deed or vehicle title in a safe, secure spot until you sell or otherwise properly dispose of that property.

    There may be times when you must suspend your usual record disposal plans, such as when litigation is likely or pending on a business matter. You may wish to consult with your attorney or tax professional to look into your individual circumstances to help guide your particular business on its record keeping and disposal policies.

    Spring is in the air.  Celebrate National Records Month with a fresh start.

     

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