Dive Deep with Declutter! Cut the Paper Chase!
Since decluttering is multi tiered, a necessary step is to stay on top of the records and documentation part of decluttering . Paperwork and record keeping build up through the years and take space and attract a host of insects. Are those old records really at your fingertips? Most banks and financial institutions have easy access to records online. National banks must retain records of any deposit over $100 for at least 5 years. At the bank’s discretion, these records may be retained for longer periods. Most financial institutions maintain online access for statements and activity for up to one year. When you finally are up to date with purging old records, you will most likely stay current on actively and accurately tracking your finances.
Keep your records and personal documents up to date and in one place in your home. Have a filing system that is easy to access since it will be updated. You can choose to keep records in a box, filing cabinet, accordion folder, or storage chest but it doesn’t matter as elaborate record keeping is not necessary. For the more important documentation, it may be wise to store in a safety deposit box or make an electronic copy using an external hard drive or USB flash drive for an extra level of protection.
Here’s a breakdown of time frames on what needs to be kept in your home files according to Bank of America:
Tax returns. You’ll want to keep a permanent electronic or hard copy of each year’s tax return and any payments you make to the government. Also keep records of major financial events, such as legal filings or inheritances.
3 to 7 Years: supporting tax documentation
Depending on your filing circumstances, the IRS may be able to ask you for supporting documentation for three to seven years after you file a return. Save any document that verifies information on your tax return—including Forms W–2 and 1099, bank and brokerage statements, tuition payments and charitable donation receipts—for three to seven years.
Keep either a digital or hard copy of the past year’s worth of your monthly bank and credit card statements. It’s a good idea to keep your digital copies stored online if you choose to go paperless. You should also hold on to pay stubs so that you can use them to verify the accuracy of your Form W-2 when tax season arrives.
If you’re self-employed, you may need your utility, cable and cell phone bills for tax purposes. Otherwise, you can dispose of them as soon as you verify your payment was processed. You can also dispose of bank withdrawal and deposit slips after verifying them with your monthly statement.
In relation to periods of limitations that relate to income tax returns, Internal Revenue Service advises:
- Seven years if you file a loss claim from worthless securities or reduction of bad debt
- Six years if you fail to report income that you should have, but only if that income was more than 25% of the gross income you reported on your return
- Four years for employment tax records
- Forever if you don’t file a return
- Forever if you file a fraudulent return.