Keeping financial records is an important part of preparing to file your income taxes, but that's not all. Record keeping can help you manage...
NEW YORK — Keeping financial records is an important part of preparing to file your income taxes, but that’s not all.
Record keeping can help you manage your finances, keep your identity and assets safe, provide proof of transactions such as bills paid, and put all your key documents in one file to grab in case of emergencies.
Organizing your mountain of financial paperwork can be daunting. Fred Rewey, author of the new book “Winning the Cash Flow War,” offers some advice.
You should have at least three files for your financial paperwork. Label them “critical,” “active” and “dead storage.”
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In the “critical” file, collect important paperwork that would be hard to replace. Include:
Marriage certificates and divorce decrees
Titles, deeds or registrations for property and vehicles
Mortgage and other loan information
Income-tax information (copies of past returns, proof of estimated tax payments)
Social Security cards
Copies of your identification cards such as driver’s license, green card or passport
Keep a file with the original documents in a safe place, such as a fireproof box in your home or a safe-deposit box.
Your “active” file should hold key financial documents from the past three years. Include:
Unpaid bills (then mark with date paid)
Income-tax paperwork, such as W-2 and 1099 forms
Your “dead storage” file should include things previously in your “active” file, as well as documents from up to seven years ago. Shred documents older than that.
For tax documents, remember the IRS has a three-year time period within which to audit your federal tax returns, and six years to initiate legal proceedings if you failed to report 25 percent or more of your income.
There is no statute of limitations for the government to start legal proceedings if you filed a fraudulent return or if you failed to file a return at all. To be supersafe, keep any tax documents that may be questionable.