February 23, 2017. By Matt Okaty:
The beginning of the year is a great time to organize your financial records. With tax season ahead, having everything organized should make filing your return a lot easier. Plus, organizing your records now rather than later will give you a huge head start on your ‘spring cleaning’ routine, leaving more time to enjoy the outdoors once winter is over.
When it comes to financial records, many people tend to be hoarders. Afraid of throwing anything out that might be needed down the road (however slim the chance is), the tendency is to let envelopes and receipts pile up and deal with them later. Developing a system that you adhere to year-round, however, can help save you from the annual headache of sorting through all the envelopes, receipts, and miscellaneous papers that you’ve accumulated.
So where should you begin?
There is no single, perfect system – only guidelines that you will need to adapt based on your individual situation. You should review recommendations from several sources on how long to retain various types of documents and then take inventory of your own needs. Consider any particular circumstances that would justify keeping a record longer than what is typically suggested. For example, the Federal Trade Commission says that sales receipts can be shredded immediately. However, this may not be prudent if there is a possibility you will need to show proof of purchase to return an item, or to be covered under warranty or insurance. It would also not be recommended if you need the receipts for itemized deductions on your tax return (the FTC places tax-related receipts in a different category and recommends keeping for 7 years).
Additionally, do not forget to properly dispose of electronically stored documents. Deleting a file from your computer may not permanently remove it from the system. Therefore, when it comes time to dispose of your computer or similar device, the hard drive should be removed and physically destroyed either through a professional service or by sufficiently mangling it yourself (i.e. with a hammer).
Here are a few links you may find helpful that provides a list of documents and how long they should be kept and why:
- How Long to Keep Financial Records
- Shredding Personal Documents and When to Dispose of Them
- Four Items to Keep and Four to Shred
- FTC’s “A Pack Rat’s Guide to Shredding”
Lastly, it is highly recommended that you invest in a shredder (preferably a cross-cut rather than a strip-cut shredder). Most financial related documents contain personal identifying information that can be used to commit identity theft and fraud. All it takes is a single document to fall into the wrong hands for you to become a victim.
The above information is not meant to be all-inclusive nor serve as a substitute for professional tax or legal advice. Please contact us if you have any questions or concerns.