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Credit Crunch: Organizing Your Financial Paperwork

Updated on August 24, 2009

 It's definitely not easy to weed out what's important when it comes to organizing household paperwork... unless you're moving and then you're forced to. Here are some basic guidelines to help you overcome any disorganized tendencies you may have.

The IRS has three rules you must keep in mind. They pretty much determine what we need to keep and what we can toss:

1) The IRS has three years from your filing date to audit your return if it suspects "good faith" errors. The three-year deadline also applies if you discover a mistake in your return and decide to file an amended return to claim a refund.

2) The IRS has six years to challenge your return, but only if it thinks you underreported your gross income by 25% or more.

3) The IRS can come after you forever if you failed to file your return or filed a fraudulent return.

So, keep tax-related cancelled checks and receipts for six years, including your W-2 forms and 1099s. Among the cancelled checks or receipts to keep six years are those for alimony, charitable contributions, child care, medical expenses, mortgage interest, professional dues, and retirement contributions .

If you own a house, co-op or condo, keep all records documenting the purchase price and the cost of all permanent improvements such as remodelling, additions, major installations. Also keep records of expenses incurred in selling and buying the property. Most experts suggest you keep these papers for as long as you own the house, plus another six years after you sell it.

Once a year, go through your cancelled checks. You really need to keep only those for big-ticket items such as jewelry, rugs, appliances, antiques, cars, collectibles, computers, furniture. You'll need these as proof of their value in the event of loss or damage. There's no need to keep utility bills once they're paid, unless you're using part of your home as an office. However, if you're thinking of selling your house, a record of the current year's heating, air-conditioning and lighting expenses is something a buyer might want to see.

Keep all your original receipts until you get your monthly credit card statement. If there are no errors and the receipts are not for items mentioned above, toss them. Keep the actual monthly statements for six years for tax-related expenses, charitable contributions and other key documents are involved. If your credit card gives you buyer protection or an extended warranty plan, keep related receipts until these perqs expire.

Keep your quarterly retirement plan statements from your 401(k) or other plan until the end of the year when you receive your annual summary. If everything matches, toss the quarterlies. Keep the annual summaries until you either retire or close your account.

I'm sure there are lots of other receipts and documents in your piles, consider purchasing a plastic or cardboard file organizer to keep them in an orderly fashion. Here are some examples of label headings you can use to organize them:

Bank Accounts
Insurance (Auto, Boats & RVs)
Insurance (Home & Property)
Investments
Medical Records
Personal
Schools & Child Care
Self-Employed
Social Security
Wills & Trusts

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