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How to decide what to archive and what to toss

Know the Score

Posted: July 19, 2008 12:31 a.m.
Updated: September 19, 2008 5:04 a.m.
When it comes to record-keeping, entrepreneurs fall into two categories: “Neatniks” who toss every piece of paper that hasn’t been handled in the past week, or “Ratpackers” — those who save every scrap of paper and receipt they ever see. When running your business we all know there are certain documents that should be filed for a certain length of time, but we never can seem to remember which is what.

Computers were supposed to make paperwork obsolete, but somehow that didn’t come to pass. So when we find ourselves drowning in a mountain of papers, we decide it’s time to tidy up. Every year, it seems I have the same problem of what to keep and how long. Was it 10 years for tax stuff, seven years for bank records, 15 or longer for equipment papers?

Well, let’s find out today, and hopefully you will cut out this column and put it in a safe place to refer to in the future.

The types of records you should keep for your safety include taxes, IRA contribution records, retirement/savings plan statements, bank records, brokerage statements, bills, credit card receipts/statements, paycheck stubs, and house/condo records. Let’s see what the time limits are for each:

n Taxes — Save returns, canceled checks/receipts (alimony, charitable contributions, mortgage interest and retirement plan contributions), and records for tax deductions taken. 

Length of time to keep is seven years. The IRS has three years from the filing date to audit your return if it suspects good-faith errors. The three-year deadline also applies if you discover a mistake in your return and decide to file an amended return to claim a refund. The IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more, but there is no time limit if you failed to file your return or filed a fraudulent return.

n IRA Contribution Records — Length of time to keep is permanently. If you made a nondeductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.

Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then shred the quarterlies. Keep the annual summaries until you retire or close the account.

n Bank records — Keep for one year to permanently. Go through your checks each year and keep those related to your taxes, business expenses, home improvements and mortgage payments. Shred those that have no long-term importance.

n Bills — Keep from one year to permanently. Go through your bills once a year. In most cases, when the canceled check from a paid bill has been returned, you can shred the bill. However, for bills for large purchases such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture and computers should be kept in an insurance file for proof of their value in the event of loss or damage.

n Credit card receipts/statements — Keep from 45 days to seven years. Keep your original receipts until you get your monthly statement, then shred the receipts if things match up. Keep the statements for seven years if tax-related expenses are documented.

n House/condo records — keep from six years to permanently. Keep all records documenting the purchase price and the cost of all permanent improvements such as remodeling, additions, and installations.  Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for six years after you sell your home. Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. This adds up to a greater profit (also known as capital gains) when you sell your house. Therefore, you lower your capital gains tax.

These are the current time-spans for record keeping, but keep in mind that it could change in the future. At least it gives you a rule of thumb to start with until you hear differently. Happy organizing!

Maureen Stephenson is a local author and owner of REMS Publishing & Publicity, which is based in Santa Clarita. Her column represents her own views, and not necessarily those of The Signal.


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