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What is Good Record Keeping?
The Fundamentals of Keeping Good Records
Good record keeping may not be fun but it's fundamental if you want save time and money. A little known fact is that there is gold in your records whether you keep them or not. Who gets the gold is all up to you.
Which do you prefer?
Keeping your records can save you money, trashing them can cost you money. Most people prefer to save money rather than spend it. If you are one of them then pay close attention. There are rules to record keeping and knowing when to file or pile it might save you a mountain of headaches.
The number one reason besides money to keep records is to minimize risk and/or transfer risk. You might need to prove you made a purchase if you want to use that warranty. If you plan on selling your house, you might need to show a receipt to a potential buyer that you did in fact remodel the kitchen two years ago. Imagine how you much more value a potential buyer would place your home if they knew you maintained it properly versus out house that didn't have any proof. Indeed, good record keeping can save and potentially earn money.
Highly Recommend Using These To Get Your Records In Order
Recording Keeping Rules for the IRS
Some rules might be made to broken but I wouldn't mess with these. The IRS has record keeping rules and if you break them you could face imprisonment and/or pay a penalty. Here are a few of them.
- Filed a tax return - keep it for at least 6 years because the IRS has 6 years to challenge your return if it believes you under-reported your income by at least 25%
- If you never, ever filed a tax return - keep your records until infinity. They can come after you and your records for as long as they want
- Filed a fraudulent return - keep your records until infinity too. They can come after fraudulent filers whenever they want
- Owe additional tax and did not file a fraudulent return or under report your gross income by more than 25% - keep your records 3 years
- File a claim for a loss from worthless securities or bad debt deduction - keep your records for 7 years.
- File a claim for credit or refund* after you file your return - keep your records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later
Records To Keep For The IRS
Keep the following for at least six years however I advise my clients to keep them for at seven;
- Child care expenses
- Medical expenses
- Mortgage interest
- Professional fees and dues
- Retirement plan contributions
- Business expenses and travel
2. Canceled Checks
3. Completed Tax Returns
4. Form #8606*
- This form should be kept forever. Its for nondeductible contributions to an IRA. You will need it to prove that you've already paid taxes on your contribution when you start withdrawing.
- Deductible contributions don't require Form 8606
*Talk to your Accounting or Financial professional about this form if you have questions
Other Good Records To Keep & Their Time Frame
Is it tax related? If so how long you should keep it.
Not Tax Related Time Frame
Yes, and it should be kept 3 - 7 years based on how you filed your taxes.
If you filed a simple return, keep it for 1 year.
Not tax related, you will receive a W-2 and that's tax related
No, but check for errors monthly and keep for one year until you receive your W-2
As long as you own it and 7 years thereafter. Protect yourself against future claims and lawsuits.
Is tax related
Yes. Keep your puchase/sales slips to prove capital gains or losses up to three years.
Yes. Keep your purchase/sales slips to prove capital gains or loss up to three years.
Yes. Keep transaction statements for 7 years.
No. Keep until you receive your 1099-DIV
Not tax related but keep until your receive your 1099-DIV
Stock & Bond Certificates
Yes, keep until sold.
Credit Card Receipts/Statements
No unless purchases used for tax related related items if so keep up to 7 years.
If not claimed on taxes keep receipts until warranty expires if there is one.
No tax related
Keep until warranty expires.
Receipts on major purchase, big ticket items, antiques and jewelry
It could be, check with your tax professional. Sometimes things like Hybrid cars are deductible, solar or energy saving devices.
Keep receipts for big ticket items and major purchases indefinitely or as long as you own them. If these items are stolen or damage you will need the receipt to claim/prove value, as well as purchase. Take a picture too.