Have you ever had to wade through clutter and files to find a financial document for a meeting? Do you have the sneaking suspicion that you might unknowingly be missing out on tax breaks? Keeping tax records and financial documents in order can reduce your stress while helping you stay on top of your financial game.
What to Keep and What to Toss
There are four general categories when deciding whether to keep certain financial documents. First, make a pile for records to keep up to a year. This category includes monthly statements, ATM and bank records, and monthly bills. Place these in a file with the month and year they pertain to. When they are a year old, shred them before tossing to prevent identity theft.
A second category is that of documents you will be keeping more than a year. For example, if you have a loan, you will want to keep all of the relevant documents to that loan until it is paid in full. Similarly, documents pertaining to investments should be maintained as long as you hold them. These can go into uniquely labeled files to be accessed when needed. Tax records and income records should be kept for seven years, as the IRS has six years from the filing date to contest tax returns.
Last, there are documents that you will need to keep forever. These include birth certificates, life insurance policies, and a living will. Ideally these should be kept in a fireproof safe, as they are difficult to replace. A safe deposit box at a bank is a good storage option, although this may make it more difficult to access these documents as needed.
How Keeping Tax Records Can Pay Off
Losing records can be devastating, so it is worth it to keep them in order. If your family cannot find your living will, it may not be respected. Similarly, if the IRS comes after you in five years, you will be happy you can prove that you made only a certain amount and paid your taxes in full. Keeping documents organized will allow you to feel less stressed and to be able to easily access any information you need. This financial habit will save you a great deal of anxiety and cost, so tackle that paperwork pile today.
