The Best Way To Organize Financial Records

Presented by Paystrubmakr.com      By John Wolf and Tom Cullen CPA

World Health Organization

To prevent infection and to slow transmission of COVID-19, do the following:

• Wash your hands regularly with soap and water, or clean them with an alcohol-based hand rub.

• Maintain at least a 1-meter distance between you and people coughing or sneezing.

• Avoid touching your face.

• Cover your mouth and nose when coughing or sneezing.

• Stay home if you feel unwell.

• Refrain from smoking and other activities that weaken the lungs.

Current lockdown can be the time to organize all the documents you keep in your drawer for the right time to put in order.

You need to enlarge a habit of good record keeping by retaining your expenses while they’re still fresh in your mind. This will ensure the claiming of all legitimate tax deductions. Regardless of how small the deduction, they will add up over time and save you big at tax time. You need to keep track as you move along day to day to save yourself a lot of time and trouble when you begin to prepare for tax time. Also, if you ever get audited by the IRS or state government, accurate records are what you’ll be relying on to back you up. Besides, your records are a great way of determining whether your assets are creating income for you, and how much.

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One of the tricks of record-keeping knows which ones to keep and which ones to pitch. Not every pay stub, invoice, or bank statement will reveal your financial circumstance or show you the direction you are headed in. To get your true financial circumstance, you’ll need to collect and examine the correct records.

There are four categories of records you will need or should keep, these are:

• Tax records
• Income
• Expenses
• Miscellaneous

You may be saving these already or some of them. You’ll need to take the time to organize them properly.

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• Income Records

Save pay stubs and annual income statements for 3 to 4 years. Business owners save their income-related documents for five years. Save your monthly bank statements as proof of deposits and track any interest you earn. If you own stocks, bonds, or mutual funds, retain these statements for your broker and save them for as long as you own the asset and four years after the year you dispose of the related asset. This will include monthly statements and confirmation slips verifying your orders to buy or sell securities.

Record the name of each stock and mutual fund you own along with the numbers of shares purchased, the date and price of purchase, and the date and price if you decide to sell. You may need to report capital gain each year and be taxed on it. Keep your Social Security statements that the administration sends you. Save all annual statements from retirement plans such as 401(K), IRAs, and pension plans. Create a list of all the properties you own like jewelry, silverware, etc.

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• Tax Records

Hold onto your tax returns along with all supporting paperwork for at least 2 to 3 years after the year you file. Save your tax return for any year in which you calculated a deferral of gain or established a value for an asset. If you sell a home and buy another you may be allowed to defer the gain from the sale of the first home; you will need to keep records that track the value you’re currently using. Save all receipts from home improvement; you will need these to defer some of your tax burdens if you sell your home for a profit. Save all canceled checks for state and local income tax and for any property you pay taxes on. These are deductible on your return. You can deduct, and contribution to charity so keep these records also.

• Miscellaneous Documents

Personal documents like your birth certificate, marriage certificate, divorce decrees, passports, and military enlistments should be saved for as long as you live. Keep yourself a copy of all insurance policies including life, auto, and health. Keep original copy of legal documents like your will, power of attorney, living will, or a trust.

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