STOP!!!! Before you stack up all the papers strewn over your kitchen table from doing your taxes, let me try to help. Have you ever thought there has to be a better way? I consider myself a fairly organized person, yet I still misplace papers, store records incorrectly, and lose track of things. Everyone’s financial habits are different, but there are some basics you should consider if you feel like organizing your financial documents is akin to a root canal. What should you keep? How long should you keep it? How do you store it? To get organized you will need a pen and three expandable file folders.
Folder 1 – Current Year Tracking
Bills – Statements (credit card, banking, pension, annuity, year-end investment reports) – Cancelled Checks – Health Records and Expenses – Receipts for Tax Deductions – Receipts for Major Purchases – Insurance Policies (car and health) – Pay Stubs – 1099s – Mortgage Interest Statements
Organizing documents as they come throughout the year will make it a lot easier for you come tax time. If you don’t receive physical statements, make sure to print off your year-end statement or summary to keep a record. Labeling your current year expandable folder’s tabs with the categories above will help you store the documents you need and make it easy to hand off to your CPA or do your taxes.
The IRS can audit your past returns for up to six years, assuming you aren’t filing a fraudulent or false return. So, keeping any documents related to your taxes for seven years is important. Once you get the taxes done, keep the folder for seven years, shred the contents and reuse it. Or, scan the documents to a hard drive that you regularly back up, shred the contents and reuse it right away.
Folder 2 – Home Related Documents
Purchase Documents – House Titles/Deeds* – Appraisals – Mortgage Information – Insurance Policies – Receipts for Home Improvements – Warranties & Operating Manuals for Appliances – Inventory of Household Items (pictures or a list)*
As a central hub for anything related to the ownership of your home, this folder will be updated periodically and kept till you sell. You will want to update documents in this folder as new versions become available, shredding the old versions. The purchase documents will serve as evidence of your basis in the property when you sell the property, and any receipts for any improvements to the home can adjust the basis. Tracking of those costs can potentially reduce capital gains taxes when you sell the home. Also, make sure to take pictures as an inventory of your household items. You can store them digitally with the rest of your photos. In the event of a total loss of your home, they can serve as evidence to the insurance company.
Folder 3 – In Case of Emergency
Insurance Policies (life and Umbrella) – List of Safe Deposit Box Contents – List of Credit Card Numbers, List of Rewards Numbers and Frequent Flyer Information – Passports – Car Titles* – Cryptocurrency Access Keys* – Medical History – Birth Certificates* – Marriage Certificates* – Death Certificates* – Adoption Papers* – Divorce and Child Custody Papers* – Social Security Cards – Wills/Living Wills** – Powers of Attorney** – HIPAA Authorizations** – Medical Directives* – Burial Vault/Plot Deeds – A letter of Instruction (in the event of a death)
You will not access this folder often, but it is arguably the most important. Life can be turned upside down in a moment’s notice with an unexpected accident or death, and having a folder prepared will put your family in a better position if something happens. Although it may seem like these things should be stored in the safety deposit box, be careful. In the event of a death, safety deposit boxes can be sealed, and original records can be inaccessible.
Everyone’s situation is different and may require a more customized strategy, but starting with these basics will provide a head start to organize your future. Storing your documents in an organized way will make things easier and cheaper for you in the long run, in addition to taking care of your loved ones if you were to pass unexpectedly. Don’t wait, print this post and get organizing!
*Consider keeping the originals in a safety deposit box along with stock certificates, coins, stamps, and other collectibles.
**Originals of sensitive financial documents should be kept with an attorney, if possible.
Source – MFS funds (Organizing Your Financial Records) – https://www.mfs.com/content/dam/mfs-enterprise/mfscom/heritageplanning/infosheets/hp_fborg_flye.pdf