From Financial Fuzziness to Financial Clarity

The first truth in my 10 Simple Truths about Money is… Procrastination Leads to Financial Fuzziness. Getting clear about your financial situation begins with record-keeping. Now before you groan too loud, keep in mind that once you get your records in order, it becomes a simple process to keep your records up to date. 

 by Cathy Curtis, CFP

Cathy Curtis

And just think how much easier it will be when it comes to filing taxes….which happens to be around the corner. 

So let’s get started and talk about what records you should keep and the length of time to keep these records.

1. Tax Returns and Supporting Documentation 

Generally, there is a 3-year statute of limitations for the IRS auditing a tax return.  However, there are certain situations where the statute of limitations is extended.

Bottom line: if you are a careful taxpayer, keep for 3 years. But if you have any doubt, keep for 7 years or consult a financial advisor to discuss your situation.

What to keep: the actual tax forms and all supporting documentation. 

 2. Bank and Brokerage Statements 

Most banks store your statements and give you free ready on-line access. There really is no reason to keep paper statements.  After you view them carefully, shred the previous month and keep the current month until the new statement comes in. 

 Also, develop a system to track payments made for tax related items: home improvement, misc. business expenses, medical payments, etc. and also for stock or mutual fund trades. (This simple task has a huge payoff at tax time!)

 3. Stocks, Mutual Funds, Exchange Traded Funds, Bonds

 When you sell any of these assets in a taxable account (non-retirement account), you must have records to show the date you bought the asset, how many shares and for what price. 

 Why? Because you must report the sale on Schedule D of your tax return. Depending on the price you bought and sold, you will be reporting a gain or a loss.

 A good rule of thumb:  maintain records of purchases at all times! The annual 1099 you receive from your bank or brokerage company will detail the sales information… but you need to keep track of purchase information!

4.  Your Primary Residence

Keep all documentation that relates to your cost basis which is acquisition cost plus improvements. Specifically, keep the closing statement from the title company at purchase and any receipts or invoices for capital improvements.

When it’s time to sell your home, you may have to prove your cost basis. 
 
5. Non-Deductible IRA Contribution 

Keep all records of your “non deductible” contributions to your IRA permanently!  Why? – To insure that you are not re-taxed when you start withdrawing from your IRA. Each year that you make a contribution, you must file IRS Form 8606, which tracks the basis for non-taxability.

6.  Credit Card Statements

Keep your original receipts until you get your monthly statement; shred the old receipt if the two match up.   Unless you are documenting tax related expenses with your credit card statements.  In that case follow guidelines in #1. 

7.  Retirement Account Statements

These accounts are tax-deferred so you don’t need to report activity on your tax return each year. (Unless you make an early withdrawal).  It’s a good idea to keep you annual statements until you retire or close the account.   

8.  Paystubs

When you receive your annual W-2 from your employer, insure the information matches your stubs.  If so, shred the stubs, if not request a corrected form,
known as W-2c.

9.  Bills

After the payment has been received…you can shred the bill!  Exception:  Keep bills for big purchases such as jewelry, rugs, appliances, computers, etc. in an insurance file for proof of value in case of loss or damage. 

So, now equipped with this list, you’re ready to start organizing your files!

One Final Note:  Don’t put any documents in the garbage that show your private identifying information (i.e. your social security number)!  Invest in a shredder and shred everything. Identify theft is an issue in today’s world.   Avoid becoming a victim by putting your shredder to work! 

Till next time…congratulations on taking the steps to move yourself from Financial Fuzziness to Financial Clarity!

Cathy Curtis is an independent fee-only Certified Financial Planner and Investment Advisor based in the San Francisco Bay Area. She is a Certified Financial Planner and a CA Registered Investment Advisor. Her firm, Curtis Financial Planning (since 2001) specializes in the finances of women, their families and their businesses.

Cathy passionately believes in Financial Literacy and educates consumers through her website CurtisFinancialPlanning, her blog: Of Independent Means, and her facebook business page Women and Money. She speaks frequently about personal finance issues – most recently at the Financial Women’s Association in San Francisco, National Association of Personal Financial Advisors Norcal Group, and the Commonwealth Club.

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Posted on 24. Feb, 2010 by SFWJ in Your Finances

Tags: family, Home, Money, wealth