Organizing Services for Boomers, Seniors & Heirs
April 15 is one of those dates that everyone is aware of well in advance, so why are so many people at the post office at midnight, dropping off their return, or filing an extension?
The answer is disorganization. If your papers are in disarray and the task of filing your tax return involves hunting and searching, procrastination will prevail. To minimize the annual ordeal, get better organized, saving only what you need and no longer than necessary.
There are certain papers that should be kept permanently, in a safe deposit box at your bank, or in a fireproof box, available at office supply and hardware stores.
• Birth, marriage, and death certificates; military records, adoption, custody, divorce, legal change of name, and citizenship papers
• Estate planning documents: will, trust, and/or power of attorney
• Copies of your IRA and 401(k) beneficiary designation forms
• Current insurance policies: health, life, home, and auto
• Deed to your home and other property
• Stock certificates, savings bonds, and other securities
• Diplomas & transcripts
Also nice to have in a fire proof box: precious jewelry, coins, stamps, or other valuable collections.
TIP: If you rent a safe deposit box from your bank, rent it jointly with a spouse, adult child, or other trusted person. This keeps the contents of your safe deposit box accessible and not sealed by the state or probate court.
Keep long term
In a file cabinet or file boxes, keep federal and state income-tax returns and all supporting documents. What supports your tax return? Receipts for business expenses, charitable contributions, casualty losses, and canceled checks for any other tax-deductible expenses.
Generally, returns can be audited up to 3 years after filing, with the following exception: The IRS can go back 6 years if it believes you’ve underreported your income by more than 25%. To be safe, always consult your tax preparer, CPA, or attorney regarding your specific situation.
Shred for safety
You can discard supporting documents after the statute of limitations expires, eliminating hefty bulk—but use a shredder. The fastest growing crime in the US is identity theft. Thieves need just a little personal information to open new accounts in your name, often finding it in the trash or mailbox. If you have voluminous amounts of paper to shred, consider hiring a shredding service which will come to your home or place of business. Otherwise, a good quality shredder for well under $100.00 will handle most home use or small offices.
Amazing space saver
Shred supporting documents from the oldest year when you file the newest. Reuse the old container, simply changing the label. It’s a good idea to keep a copy of your actual returns though. They use much less space without the supporting documents, and provide a continuous record of your financial history. Otherwise, should ever need it, you’ll have to purchase copies from the IRS.
Other long term papers to hold include documents pertaining to you home: receipts, instruction manuals and warranties for major appliances, as well as documentation of improvements made to your home. Keep throughout your ownership of the home, plus 7 years.
Short term papers
These also belong in a file cabinet or file box:
• Monthly statements from your bank, broker, mutual funds, 401(k) and other retirement plans;
• Pay stubs;
• Any paper documenting a purchase, sale, or transfer of an investment holding. You can shred these (and the statements/papers above) when you receive year end statements and a W-4;
• Credit card statements and corresponding receipts. Keep with your tax records if they contain tax deductible expenses. If not, shred as soon as your most recent payment is reflected;
• Utility and telephone bills. Shred as soon as you receive the current bill reflecting your last payment, unless they’re a business expense;
• ATM receipts and deposit slips. Shred as soon as you verify the transaction on your bank statement.
To nip tax time angst in the bud, start using a financial software program. Use Quicken for personal and some small businesses, or QuickBooks for business. By entering income and expenses on a monthly basis, the lion’s share of getting ready for “The Tax Man” is done throughout the year, helping you be better informed financially along the way.