WHAT TO THROW OUT - WHAT TO KEEP
Out with the old and in with the new is what I say!
It's the New Year and you have decided your resolution will be to clean up all that paperwork piled on your desk or in your file cabinets, or boxes. It can be very overwhelming and I'm sure you are just wondering where to start.
I don't know about you but if you have ever had the displeasure of cleaning out a loved one’s paperwork after they have passed you may have dealt with this stress. Besides thinking they were an absolute pack-horse you were just shaking your head wondering what a 1965 utility bill would even be used for. Granted it can be kind of fun figuring out how much “stuff” cost back then so if you REALLY feel a need to keep those papers how about just digitally scanning them into a folder. I’m going to assume that since you are reading this online you have a general idea about scanning to computer files.
As a Lean Office Champion I would like to share not only some great organizational tips but the government requirements on what to throw out and what to keep. Below you will find the IRS information but in a nut shell….. If you honestly file your returns the IRS says you only need to keep 3 years and backup. Now, I have always been worried that if I throw away years 4-7 that something will come back to bite me so I personally always keep 7 years. Based on my decision I need to keep documents for 2008-2014 taxes including backup and any legal documents on assets I currently own like cars, houses, stocks, etc.. If you sold that house, or car, more than 7 years ago, and you don’t have an emotional reason to keep the paperwork then please just destroy it.
First you obviously are going to need to organize the files you want to go through. My favorite way to do this is to sit on the floor with my back to the couch with crossed legs and empty boxes within reach. One box for shredding, one for garbage, one to keep the hard copies in a file and one to scan.
1. Shredding Box – use this for anything that has your personal information on it including addresses and phone numbers.
2. Garbage Box – I would throw in envelopes, blank pages, folders or anything that doesn’t have your personal information on it.
3. Hard Copy Box – Anything in this box will be kept in a file cabinet. This would be things like pink slips, recorded documents, birth and death certificates, passports and any other documents that may need to be used.
4. Scanning Box – Anything in this box needs to be scanned into a digital file and kept on the computer. Or go down to the office supply store and purchase an external hard drive. Keep your documents on the hard drive and put in a safe place (I like fireproof cabinets for this). Once you scan these documents there is no need to keep them and you can add them to the shredding box. You can also scan copies of your important records in box #3 just in case they are accidentally stolen or destroyed. I like making copies of my driver’s license and credit cards in case of a problem.
Now that we have sorted everything out don’t just stack them in the garage but make sure and put them where they should be. Either shred, throw away, file or scan these or you will just have moved your mess into organized mess.
Now that you have gone through the personal documents why not try this technique on your children’s school papers and pictures.
Should you feel overwhelmed by the task of going through your documents please contact me. I live for throwing away “stuff” and will be happy to let you hire me to do so.
How long should I keep records?
The length of time you should keep a document depends on the action, expense, or event the document records. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.
The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or that the IRS can assess additional tax. The below information contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.
Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.
1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
3. You file a fraudulent return; keep records indefinitely.
4. You do not file a return; keep records indefinitely.
5. You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
6. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
7. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
The following questions should be applied to each record as you decide whether to keep a document or throw it away.
Are the records connected to assets?
Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.
Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the bases of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.
What should I do with my records for nontax purposes?
When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.
