How long to keep financial records?

rocioSeptember 5, 2008

How long do you keep tax return paperwork?

How about utility bills, credit card statements, and bank/brokerage statements?

I am trying to reorganize my file cabinets because I just run out space!

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For investments that are taxable (in other words, not tax deferred like IRAs) you need to make sure that you keep proof of the "cost basis", so that, when you sell, you can accurately calculate and prove the capital gain or loss to the IRS's statisfaction. Every brokerage firm's statement is different. Some are nice enough to record in each statement what the cost basis is (It changes if dividends are reinvested). But some statements are less user friendly, which means you need to keep them all in case the IRS wants to see proof of how you calculated the gain or loss when you sell.

I do not see the need to keep utility bills. You might want to keep credit card statements for a year or two in case you need them to prove an expense.

If you can spare the space, save all your tax returns. There is one aspect of the tax returns that many people overlook: If you are fortunate enough to earn enough money so that you do not qualify to deduct your annual IRA contributions, it is important to keep track of the TAXED contributions that you make. The reason: when you reach age 70 1/2 years and you start taking Minimum Required Distributions, you have to pay taxes on those distributions, but when you calculate the amount that's taxable, you should deduct those IRA contributions that you made over the years that were not tax deductible. After all, you don't want to be taxed twice. You need to keep track of these taxed IRA contributions using IRS form 8606. If you haven't done so yet, you should start.

Monthly checking account bank statements are useful for calculating your cash flow -- how much you spend, on what you spend it, and how much you earn. Do this analysis once a year is useful because it gives you a good snapshot of what you do with your money. But most canceled checks and bank statements don't need to be kept after a year or two. Just keep the canceled checks that document your income tax deductions in case you're audited.

Be careful with records that you discard. You do not want to give out your social security number or account numbers to anyone who might steal your identity. Get a good paper shredder -- one that shreds paper into confetti, not just long narrow strips, because paper shredded with those can be easily reconstructed.

    Bookmark   September 5, 2008 at 9:16PM
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I shred bank statments, utility bills, brokerage statments everything when they come in. I don't see a need to keep something which can be generated electronically if needed. When we've had to see or had stock sold and needed the tax basis we called Scwab and they sent us the information.

    Bookmark   September 24, 2008 at 2:00PM
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>>When we've had to see or had stock sold and needed the tax basis we called Scwab and they sent us the information.Never assume that a financial institution will keep your taxable cost basis forever. They all have limits on how long they keep such information, and are not legally obligated to keep such information at all, let alone in perpetuity.

The IRS considers it YOUR responsibility, not your broker's. Always keep your cost basis information forever - it can be helpful to heirs, in certain situations.

    Bookmark   September 25, 2008 at 12:08PM
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Thank you all for your advice. I bought a new cheap file cabinet!

    Bookmark   September 30, 2008 at 11:56PM
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I shred my tax returns after 10-11 years.

    Bookmark   October 1, 2008 at 10:40AM
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