Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Trash or stash financial records

Dear Dr. Don,
What should I consider crucial financial documents? What personal papers should I throw away, and what should I keep?
Thanks,
Andres

Dear Andres,
The biggest areas of concern are: your tax returns, your financial statements and the documents associated with your real estate transactions. Keep the supporting documents to your tax returns with your tax returns. Accountants advise that you keep tax returns from six to 10 years from the filing date.

Keeping track of the tax cost of your investments and the holding period on the investment is important to differentiate between long-term and short-term capital gains. Switch brokerage firms and the new firm may not keep track of the tax cost of your transferred assets. I'd hold on to these statements indefinitely.

Capital improvements to your house modify the cost basis of your home. That can be important in determining whether you owe taxes if you sell, so keep the closing documents along with any renovations in a file for that home. Keep the file for as long as you own the home, longer if the home sale was prior to May 7, 1997.

Electronic record keeping can help you justify throwing away the monthly electric bills, etc. For example, my power company keeps a record of my billing history available online. I don't need to hold on to my power bills. An electronic check register, available on Money 2002 or similar software, can keep payment history on your monthly bills.

In general, if there could come a day where you would need the information to prove a point to the government or save money on your taxes, you should keep the information.

-- Posted: May 8, 2002