RECORD KEEPING - How to Organize Your Financial Records
Record keeping suggestions
If you take the time now to organize your personal financial records then the task of finding information when you need it most will be much, much easier. It will be easier because you have planned ahead and laid the groundwork for easy retrieval. Now you may think that this is just a make-work task that can be ignored until later, but believe us when we tell you that we have seen many people who have sat across the desk from us in a frenzy trying to unravel a deceased spouse’s financial affairs: it is seldom a pretty site. So with that as an introduction, we will begin on how to organize your financial records.
Start a Filing System: The best way to ensure your financial records are in order is simple: start a filing system! Begin by finding a convenient place for “current” files, those you will be adding to regularly. A filing cabinet works best for most people, but a plastic box or accordion file will also work.
Next designate an area in your home for old or “dead” files. Those are files you need to keep but aren’t likely to be needed on a regular basis.
The third component of a well organized record keeping system is a safe deposit box. Use it to store any documents that are costly or difficult to replace.
Now that you have a system started, the next step is to decide on what documents need to be organized and what can be thrown out. Right, you don’t have to save every scrap of paper that you have ever generated; you can toss a lot of the stuff almost immediately.
Keep indefinitely (your safe-deposit box contents)
A list of records that should be kept indefinitely is quite short and it includes your wills and trust documents, social security card, birth certificate, adoption papers, military papers, marriage certificates, divorce decrees, driver license numbers and passports. You should also keep a copy of your income tax returns indefinitely, although the documentation to support them does not have to be kept with them. We recommend that you also keep mortgage records and title records to real estate even if you have bought and sold property many times since the first. Here is our list of items that should be kept indefinitely –
Other tax related records For the most part, any documentation that you need in order to substantiate a transaction that is tax-related must be kept at least three years after the tax return is filed. In general, the Internal Revenue Service has three years after you file your tax return in to audit or protest something on the return. After that time, with the exception of fraud or a significant understatement of income on your part, the period to audit the return will have passed and the need to substantiate a transaction will have passed along with it. If you have any question about the running of the statute of limitations, you should ask your tax professional for clarification. Better to be safe in this area than sorry later.
Day-to-Day Transactions You do not need to keep canceled checks or ATM receipts, except for those that may come into play on your income tax return. You can dump them after you are satisfied that the bank has cleared them successfully and there are no lingering issues that would cause you to want to look back on a document.
Important Details It is most helpful if you make a list of all of your important financial records and where each is located. The list should include insurance policies, bank and investment accounts and the names and telephone numbers of professionals who you trust and have helped you to put your financial affairs together.
We have a follow up page at this site with additional information on record keeping which you may also enjoy. It's called "Taming the Clutter".
We're here to help. Please feel free to contact us to discuss your situation.
Start a Filing System: The best way to ensure your financial records are in order is simple: start a filing system! Begin by finding a convenient place for “current” files, those you will be adding to regularly. A filing cabinet works best for most people, but a plastic box or accordion file will also work.
Next designate an area in your home for old or “dead” files. Those are files you need to keep but aren’t likely to be needed on a regular basis.
The third component of a well organized record keeping system is a safe deposit box. Use it to store any documents that are costly or difficult to replace.
Now that you have a system started, the next step is to decide on what documents need to be organized and what can be thrown out. Right, you don’t have to save every scrap of paper that you have ever generated; you can toss a lot of the stuff almost immediately.
Keep indefinitely (your safe-deposit box contents)
A list of records that should be kept indefinitely is quite short and it includes your wills and trust documents, social security card, birth certificate, adoption papers, military papers, marriage certificates, divorce decrees, driver license numbers and passports. You should also keep a copy of your income tax returns indefinitely, although the documentation to support them does not have to be kept with them. We recommend that you also keep mortgage records and title records to real estate even if you have bought and sold property many times since the first. Here is our list of items that should be kept indefinitely –
- Adoption papers
- Birth certificates
- Cost of purchasing major assets or investments, and costs of additions
- Custody agreements
- Death certificates
- Deeds to property
- Divorce papers
- List of assets (keep current)
- List of previous employers
- Loans that have been paid off (canceled notes or other evidence)
- Marriage certificates
- Passports
- Photographic or video record of house and household contents
- Record of any governmental employment (e.g., armed forces)
- Income tax returns (supporting documentation may be discarded after six years)
- Tax forms and supporting records relating to non-deductible IRA contributions
- Tax forms and supporting records relating to sale of a home
Other tax related records For the most part, any documentation that you need in order to substantiate a transaction that is tax-related must be kept at least three years after the tax return is filed. In general, the Internal Revenue Service has three years after you file your tax return in to audit or protest something on the return. After that time, with the exception of fraud or a significant understatement of income on your part, the period to audit the return will have passed and the need to substantiate a transaction will have passed along with it. If you have any question about the running of the statute of limitations, you should ask your tax professional for clarification. Better to be safe in this area than sorry later.
Day-to-Day Transactions You do not need to keep canceled checks or ATM receipts, except for those that may come into play on your income tax return. You can dump them after you are satisfied that the bank has cleared them successfully and there are no lingering issues that would cause you to want to look back on a document.
Important Details It is most helpful if you make a list of all of your important financial records and where each is located. The list should include insurance policies, bank and investment accounts and the names and telephone numbers of professionals who you trust and have helped you to put your financial affairs together.
We have a follow up page at this site with additional information on record keeping which you may also enjoy. It's called "Taming the Clutter".
We're here to help. Please feel free to contact us to discuss your situation.
