Q: It’s time for spring cleaning, and I’m going to start with documents and files. What must I keep and what may I shred?
A: Review the credit card statements monthly so you can dispute transactions within the 23-day period, and then shred the receipts that don’t support any tax deductions.
The IRS issued “Topic No. 305 Recordkeeping” instructions that suggested keeping tax records for six years. Canceled checks and any support documents for returns should also be saved for six years.
Now is a good time to consolidate like-kind bank and investment accounts that are redundant. Use separate accounts for rental properties, businesses and other specific purposes, but don’t keep multiple checking and savings accounts open just to bucket Christmas or vacation spending. Spend your time having fun, not reconciling statements.
The same rules apply to investment accounts. Consolidate like-titled accounts. Have only one after-tax investment account, Roth IRA and Traditional IRA. Gather inactive 401(k) accounts and roll them into a Rollover IRA. Keep good records of post-tax contributions to provide any cost basis to the IRS.
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Keep good records on home improvements and updates for at least six years after the sale. The IRS allows single people to have a $250,000 profit (initial cost and capital improvements) on the sale of their home without paying any tax. Double that for marrieds.
Small businesses must keep sales tax and employment tax records for at least four years.
Active CDs, current loans, insurance policies, deeds, mortgages and vehicle titles should be kept while they are active.
Keep brokerage, mutual fund and IRA statements for six years after closing.
Determine what must be kept and for how long.
Identity theft is at an all-time high, and about one third of US citizens have experienced it. Shredding minimizes risk. Any document that includes your date of birth, signature, account numbers, passwords or social security number is pay dirt for a crook.
Strong passwords protect your online accounts; they should have 12 characters and contain upper and lowercase letter, numbers and special symbols. Password managers make life easier; find one that you like.
You should check some documents periodically and keep them in a secure place forever. Consider a fireproof safe or safe deposit box for DPOA, health care surrogate and will and trust documents. Tell your representative(s) that you have designated them and give them copies of documents or tell them where to find them.
Marriage licenses, birth certificates, adoption papers, death certificates and records of paid mortgages are also “keep forever” documents.
Spend about an hour at a time on this project until it’s complete, then reward yourself when it’s done. I’m thinking chocolate!
Mary Baldwin, CFP®, is a fee-only financial planner at Buckingham Strategic Wealth in Indian Harbor Beach. Contact her at 321-428-4555 or [email protected]
For informational and educational purposes only and should not be constructed as specific investment, accounting, legal or tax advice. Individuals should reach out to a qualified financial professional who can provide specific advice on annuities to determine if the above information is applicable. The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®.