Mid-Year Office Clean-up

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Mid-Year Office Clean-up

July 6, 2016

Mid-Year Office Clean-up
Mid-Year Office Clean-up

This week’s MHFA News article is brought to you by Greg Douglas, CPA.

New Year’s Day and the fourth of July, in addition to being days of optimism, remembrance, and celebration are days for office cleanup around our house. While the early college bowl games or the Nathan’s hot dog-eating contest play in the background, we take advantage of the late morning lull in the house to shred the home-office clutter that has built up over the last six months, in addition to the longer-term documents that we maintain in the office file cabinet.

In my opinion, the decision about whether to shred or keep most documents is an easy one: shred. That may be a slightly aggressive approach for most people, so it’s useful to have some guidelines. The IRS provides taxpayers the following assistance in this area in regards to any records that flow into a personal income tax return:

  1. Keep records for 3 years if situations (3), (4) or (5) below do not apply to you.
  2. Keep records for 3 years from the date you filed your original return or two years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
  3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  5. Keep records indefinitely if you do not file a return.
  6. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
  7. 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 property?
  • Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property.

Keep copies of your filed tax returns permanently. They help in preparing future tax returns and in making computations if you file an amended return. Not every document I come across on those holiday shred fests feeds into my tax return, so I also consider the following advice from the Better Business Bureau, sourced from the NY State Department of Consumer Protection:

Credit Card/Purchasing Documents
Contracts (purchases and sales) – At least 6 years after the termination or disposal of item
Credit Card Receipts – Shred once reconciled with your monthly statement
Sales Receipts – At least 6 years
Bank Documents
Bank Deposit/Withdrawal Slips – Shred once reconciled with your monthly statement
Bank and Credit Card Statements – At least 7 years
Cancelled Checks – At least 7 years
Investment Documents
IRA Contribution Statements – Permanent
Pension/Profit Sharing Informational Returns – Permanent
Retirement/Savings Plan – Permanent
Insurance Documents
Insurance Policies – At least 6 years after the termination of the policy
Settled Insurance Claims – At least 4 years after the termination of the policy
Tax Documents
Income Tax Payment Checks – Permanent
Medical Bills (if tax-related) – At least 7 years
Records for Tax Deductions – At least 7 years (e.g., charitable donations)
Home/Residence and Personal Documents
Bills – At least 1 year, however bills for large purchases should be retained for insurance purchases
Deeds, Mortgages, and Bills of Sales – Permanent
Legal Correspondence – Permanent
Medical Bills – At least 3 years
Contracts and Agreements – At least 6 years
Paycheck Stubs – Shred after reconciled with W-2 form and taxes are paid
Plan and Trust Agreement – Permanent
Real Estate Records of Improvement – Retain for length of home ownership
Utility Records – At least 3 years
Birth certificates, social security card, marriage licenses, divorce decrees, passports, education records & military service records – Permanent

Good luck with your own home office clutter combat. As for my family, we will be back at the shredder on Sunday, January 1, 2017 in time for the kickoff of the Bears -Vikings game.