||Ask Dr. Don
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?
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,
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