Thursday, March 25, 2010

How Long Should You Keep Your Receipts?

My wife and I have been on a major clean-up campaign of our house.

The old adage of "the more stuff you own, the more it owns you" had been mentioned more than once by each of us, so we've finally decided to act.

(It's really great to get rid of stuff!)

However, there's always the concern that we're throwing something away that we might need in the future.

As always, the trusty New York Times came through with an article to help (published today). I have highlighted in yellow a few points:
March 24, 2010

Retain Your Records No Longer Than You Must

I’VE long been a pack rat when it comes to saving financial documents. I have a file cabinet full of old cellphone and credit card bills, brokerage firm and bank account statements and health insurance benefit forms.

When my husband accused me of saving too much, I realized that there wasn’t much reasoning behind my recordkeeping. So I decided to find out what financial documents people needed to keep and in what form — as we fully enter the age of electronic statements — and what can be purged now.

According to Catherine M. Williams, vice president for financial literacy at the credit counseling firm Money Management International, there are two main reasons to keep financial records. “It’s either for backup to a tax issue or for proof that you did something like make a payment,” Ms. Williams said.

The Internal Revenue Service requires that individuals be able to produce records proving any income, deductions or credit claimed for at least three years from the date of a return, the statute of limitations for how long the I.R.S. has to assess additional tax if all income was reported correctly. In addition, the I.R.S. requires that individuals be able to produce such records for six years if they fail to report income that is more than 25 percent of their gross income. There is no statute of limitation for failure to file or tax fraud.

Therefore, experts generally recommend keeping anything that verifies the information in your tax return for at least six to seven years. “My recommendation would be never throw away copies of your tax returns and checks made out to the government — anything else, I would say keep for at least six years,” said Jude Coard, a tax partner at accounting firm Berdon L.L.P.

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