Organize Financial Records for Big Dividends

December 11, 2013  |  Record Keeping
Organize Financial Records for Big Dividends

Written by: Doug Jacobs


A financial record keeping strategy pays big dividends.  A combination of digital and paper record keeping techniques is effective in taming the clutter. The basic principle is to assemble the documents by category. For example – some categories are investments, real estate, insurance, family records, and tax preparation.


Investment account statements and any trade confirmations keep until the year end statement is received. Verify the year end statement shows the investment’s initial purchase price and any reinvested proceeds so the tax basis can be calculated when the investment is sold. Keep the annual statements for at least three years (possibly seven in certain situations, described below) from the date the income tax return is filed. A good idea is to keep the annual investment statement as long as you are a customer of the investment company.


Always keep the paperwork that shows the money into and out of IRAs, 401Ks, retirement plan contributions, and non-deductible IRA contributions. When funds are withdrawn, these records will help prevent paying taxes on the same money twice. These records will be helpful in the event of questions regarding your Social Security or retirement plan contributions.


Tax returns, W-2s, and retirement plan contributions should be kept forever. The tax return’s supporting documents can be tossed after three years from filing the tax return. Keep in mind, the IRS has three years to audit your tax return (six years if income is underreported by 25% or seven years when a loss from worthless securities or bad debt is reported).


Documents to keep while active include: any documents notarized or with an official seal, contracts, insurance, stock certificates, property and home improvement (consider keeping several years after selling the property to protect against lawsuits), warranty documents, and records of satisfied loans (keep for seven years).


Documents to keep forever include: marriage licenses, birth certificates, will, adoption papers, death certificates, and records of paid mortgages.


Digital storage provides a convenient means to maintain non-critical original documents and provides an additional copy of those important original documents. Consider using technology that will make it simple to process and retrieve the documents. Converting the documents to a PDF format which is widely used will help opening the old documents. Storing the documents in two locations will reduce the risk of losing them.  


Please contact our Firm’s tax personnel for more guidance.