Taxes, Record Keeping, & Clearing the Clutter

UPDATE – this was originally written in 2011 – for 2012 taxes are due on the 17th, and then we go back to the 15th for the next three plus years… Oh no, it’s April 16th and taxes were due… on the 18th? In reality, my taxes were actually filed back in February, but if this were any other year, this article would be a day late & if you hadn’t filed your taxes or an extension, you would be looking at a hefty little fine. Due to a relatively unknown holiday called Emancipation Day, you actually have until the 18th to file your taxes this year, and I don’t have to wait until next year to write this.

Emancipation Day?

On April 16th 1862, Abraham Lincoln signed the Compensated Emancipation Act, which freed certain slaves in the District of Colombia. Back in 2005, the mayor of DC signed into law a public holiday on April 16th, to celebrate that day. While the Federal Government does not observe it, the IRS tax code specifically states that filing deadlines cannot fall on Saturday’s, Sunday’s or Holidays. As the 16th, this year falls on a Saturday, which means that it is taken off and observed by government workers on Friday. Hmmm, maybe we need more Holiday’s…

Record Keeping Retention:

While most of us approach tax time with some dread, there is at least one silver lining for many businesses, and that is being able to shred a year’s worth of boxes to make room for this years. Unfortunately, for many homeowners, they will hear all sorts of advice, or think that what applies to businesses also applies to them and they just panic & keep everything forever. Below is a quick chart of items & my recommend time that you should keep them based on the IRS FAQ’s on this subject, and some common sense.

Item Retention
Accident Reports and Claims Varies – up to 7 years
Bank  Statements 3 Years (IRS)
Car Records (Maintenance, Recalls, Title) Until Sold
CPA Audit Reports 7 Years
Credit Card Reciepts Until Reconciled
Credit Card Statements None – online
Current Insurance Policy Life of Policy + 1 year
Employment Tax Records 4 Years (IRS)
Expired Insurance Policies 3 Years (IRS)
Important Correspondence Depends – Life
Income Tax Payment Checks 3 Years (IRS)
Income Tax Returns 3 Years (IRS)
Investment Trade Confirmations 3 Years (IRS)
Legal Records Consult Lawyer – Life
Medical Bills (if tax-related) 3 Years (IRS)
Medical Bills (in case of insurance disputes) 1 year after resolution
Mortgages / Deeds / Leases 3 Yrs after sold (IRS)
Other Tax-Related Bills 3 Years (IRS)
Pay Stub – End of Year (with accrual shown) Until verified with W2
Pay Stub – regular (with accrual shown) Last 2 Mnths
Pay Stubs – handwritten / no accrual shown Until verified with W2
Property Records / Improvement Receipts 5 Years after sold
Quarterly 401k, Investment Statements Until Year End Rec.
Retirement and Pension Records Last 3 Years
Sales Receipts (Big Ticket Items) File with warranty
Sales Receipts (Tax Items – make copy) Copy – 3 Years (IRS)
Sales Reciepts, Paid Bills Until Reconciled
Stock and Bond Records 3 Years (IRS)
Supporting Documents For Tax Returns 3 Years (IRS)
Utility Records None – online
Wage Garnishments 7 Years
Warranties and Instructions Life of Product
Worthless Securities / Bad Debt 7 Years (IRS)

Clearing up the Clutter:

While many people see no issues with keeping everything for years, in many cases it is not a good practice due to all the sensitive information found on many of these records. In Phoenix there was a string of break-ins were not only did they rob the place, but also they later turned around and found that their identities were stolen. We recommend shredding older unneeded documents, and securing any other sensitive information to help prevent that. One new tactic which I am looking into is many of the IRS required records are no longer needed to be kept (ones paid by Credit Card), and electronic copies are considered valid which should help eliminate a few boxes worth of records from my office.