Where's That Receipt?

A YourMoneyCounts® exclusive by author Bernice Kanner

Just as spring triggers thoughts of house cleaning, fall makes many folks think record keeping. Months before tax season and the start of the new year is the perfect time to start organizing.

WHY YOU GOTTA DO IT

Not only will it spare you frantic digging for documentation come time to deal with the IRS, it will ensure that you deduct all that you're entitled to. Good records will also help you deal with a tax audit should you be so unfortunate as to be singled out for one, and avoid penalties for unsubstantiated deductions. It will also make it easier to find information when you need it and can be a real lifesaver during emergencies. Careless record keeping makes you a sitting duck for identify theft —and likelier to lose out in more mundane ways, like applying for rebates. What's more, it will allow you to (safely) free up precious storage space.

WHERE (AND HOW) TO KEEP THOSE RECORDS

Documents that would be costly and difficult, if not impossible, to replace can be stored in bank safe deposit boxes which can be rented inexpensively, or in a fireproof safe or filing cabinet at home. You might want to stow these there:

• Marriage certificates, divorce decrees, death certificates
• Birth certificates, adoption papers
• Citizenship papers, military records
• Deeds and titles
• Stock/bond certificates (While they can't be sold or legally transferred without the owner's signature, certificates can be lost, stolen or forged, making their replacement taxing. Government bonds can be replaced for free but it takes months so they should stay here too.)
• An inventory of the contents of your home (with model numbers, brand names, purchase and replacement prices) to provide your insurance agent to settle a claim if your house burned. Update this periodically by noting new purchases and adjusting replacement costs.
• Important contracts
• Your will (Originals are usually kept in the safe of the lawyer who prepared it, a second copy here and another at home where it's readily accessible)

You needn't stash insurance policies or cancelled checks here as your insurer/bank keep backups. No need to take up this valuable space with other financial educational or employment records or social security cards.

Electronic bill paying can help record keeping. According to my Are You Normal About Money survey, 43 percent of Americans keep financial records on their computers. Be sure to back these up electronically on in paper files. Setting up direct deposit and automatic bill paying for recurring charges like cable will cut down on paper squalor.

In addition to your "safe" place, you should have a cardboard box, folders or a filing cabinet for active files (shoeboxes are inadequate or don't cut it.) and a substantial permanent file into which you move important papers and weed out castaways at least annually.

In the active file keep bills to pay plus receipts from bills you've paid, current bank statements and cancelled checks, and tax documentation.

In the permanent file you can set up folders for:

• Employment records, including your resume, recommendation letters, health benefit information
• Credit & debt records including the number of each credit and debit card by company name and charge history
• Insurance policies
• Copy of the will
• Medical records
• Social Security card; information on benefits and regulations
• Educational diplomas, transcripts
• Warranties and appliance manuals
• Passport
• You can also stow a key to your safe deposit box here with an inventory of what's in it

Many people color-code folders, for example designating green for finances, blue for insurance, and red for vital papers. And they find that by filing documents by subject in chronological order helps best locate what they need in a flash. Often one family member assuming major responsibility for recordkeeping works best, but all family members should know how the system works.

WHAT TO KEEP HANDY AND UPDATE REGULARLY

*A record book of where your important papers are kept should list:

• Important contacts, like tax counselors, attorneys, bankers, brokers, insurance agents and policy information, employers, creditors and debtors
• Cards in your wallet
• Bank savings and checking account numbers
• Family social security numbers
• Credit cards (with address and phone number of each creditor
• Name and branch of where your safe deposit box is and list of its contents

*Active files for bills, invoices and your checkbook (with expenditures entered faithfully), plus cancelled checks, credit card receipts, other proof of payment, sales slips, written documentation that spells out what you paid for, and records to support any deductions or credits you will claim on your return before you file them in more permanent places. Such deductions may include alimony, charitable contributions, mortgage interest, child care expenses, and real estate taxes. Use envelopes to store receipts by category of expense.

*A home account book where you post expenditures and other information such as gasoline expenditures, mileage and maintenance.

WHAT TO KEEP FOREVER

• Deeds of ownership; sales agreements, closing statements, insurance papers
• Educational transcripts, diplomas
• Employment records including annual W-2 forms to document work and income history
• Important correspondence (such as letters from a deceased parent)
• Insurance records
• IRA statements noting if contributions were tax-deferred or already taxed
• Legal records, medical directives, power of attorney
• Medical history
• Passport
• Retirement and pension records
• Social security cards
• Tax audit reports
• Vital documents (birth, death, marriage and adoption certificates, divorce decrees, citizenship, military and medical records, etc.)
• Wills and burial instructions

WHAT TO KEEP FOR SIX TO SEVEN YEARS

• Accident reports and claims
• Bank statements
• Income tax returns. Legally you need keep them for three years from when you filed that return, but practically you should hold them longer along with supporting documentation which may include alimony, charitable contributions, mortgage interest, child care expenses, and real estate taxes. The IRS destroys original tax returns after three years; you or your heirs may need information after that
• Investment records (retain for six years after the stock/bond is sold)
• Mortgages/leases (keep six years beyond the conclusion of the agreement
• Property records/improvement receipts (keep for seven years after property sells)

WHAT TO KEEP FOR THREE YEARS

• Cancelled checks
• Credit card statements
• Expired insurance policies
• Medical bills (in case of insurance disputes)
• Utility records

WHAT TO KEEP FOR THE LIFE OF THE RELATIONSHIP

• Appliance sales receipts for as long as you have the equipment plus three years
• Car records (until the car is sold)
• Annual dividend statements
• Insurance policies (home, medical, and car: keep for the life of the policy, plus three to seven years in case of late claims)
• Pay stubs (keep until reconciled with your W-2 or if you have deductible expenses withheld from your paycheck, like union dues, medical insurance premiums or 401(k) contributions, keep indefinitely to prove payment
• Warranties/guarantees and instructions (keep for the life of the product)

WHAT TO TOSS

Nothing! Instead shred anything that has your name and address, bank account, credit card numbers, or Social Security number on it to protect from identity theft. If you stow financial records on your computer and get a newer model, be sure to clear the hard drive of your data.

You can safely unload:

• Old medical bills that didn't amount to enough to meet the deduction threshold
• Monthly investment statements once you receive (and retain) the annual summary that reflects the activity of the monthly statement
• Sales receipts for gas, groceries, incidentals that you've already recorded in your home account book
• Salary statements after you've correlated it with your W-2 form
• Cancelled checks for cash or non-deductible expenses as well as credit card and dividend receipts that you've verified on your monthly or annual statement. Keep the statement.
• Bills that have been paid once their payment is verified on the next bill
• Warranties and coupons that have expired
• Bankbooks for accounts closed more than three years ago

COMMON BLOOPERS: Are you guilty?

• Seventeen percent of drivers keep their car title in the glove compartment, according to Are You Normal About Money. If the car is stolen, you're out of luck on all counts.
• Some people still pay bills with cash rather than via credit or debit card —and , neglect to get authentic receipts. Paying with plastic assures better record-keeping.
• Although it takes little time and costs nothing (most come postage paid) and could save lots of money, more than one in three people never mail in warranty cards. (Lost in the pile.)
• Not letting others know where you keep important information about what to do in an emergency or your death, or failing to jot down your account numbers (so you don't forget) could make you a "missing depositor" or deprive your family of what they'll need later
• Procrastinating cleaning your house leaves your home dirty. Procrastinating keeping your records could leave you without a home. Rather than save the task for one (massive) sitting, tackle little bits weekly, or at least monthly.

Organizing your records is great exercise. Once you get past the soreness you'll feel fabulous. Money back guarantee.