News Column

Detroit Free Press Susan Tompor column

September 4, 2014

By Susan Tompor, Detroit Free Press



Sept. 04--I do not want to get too personal with a personal finance column. So let's say I know someone who, after the storm, ended up staring at a stack of very drenched 1987 statements for a checking account that was closed long ago.

Yes, we're talking about hoarding bank statements that date back before the fall of the Berlin Wall.

Many of us were forced to deal with pitiful piles of paper after historic flooding hit metro Detroit basements. Old W-2s for companies that no longer exist. Soggy state income tax booklets. Old MCI bills.

Sure, a bad storm alone won't throw you into the paperwork vortex. Some of us must re-evaluate what records we keep before making a big move. Maybe it's a divorce. Or a death.

But what slips of paper do you need to save? Does anyone really need a May 2000 phone bill long after you ditched that phone?

-- How long should you keep an old tax return?

The Internal Revenue Service suggests keeping returns and records at least three years from the date you filed the return. But to be super safe, others say hold on to tax returns for at least seven years in case the IRS decides to audit you down the road. Maintain the backup documents, too.

Sam Hodges, a certified public accountant and principal at MRPR in Southfield, said some tax returns and related documents should be kept as permanent records, too, such as paperwork documenting a home purchase (a HUD statement) and home improvement receipts.

Hodges, a member of the Michigan Association of CPAs, said taxpayers can ask the IRS for transcripts of old returns. But it is best to keep documents that you'd really need in the future.

A few experts advise keeping tax returns maybe forever.

Rodney Harano, a certified public accountant in Honolulu and member of the American Institute of CPAs, said his policy is to keep old tax returns forever by scanning the documents and keeping them on a thumb drive. He personally has returns that go back to 1978 or 1979.

"Sometimes, it's good to go back and see how poor we were back in the old days," Harano joked.

Some old returns can be key if there's a question about your income for Social Security records. Older returns would back up non-deductible contributions for some Individual Retirement Accounts in given years.

-- How long should you keep a pay stub?

OK, many companies aren't handing out paper checks now. But typically, you're going to want a record of your pay to double check the W-2 that's issued. If the W-2 is wrong, you'd have pay stubs for the year to dispute it.

Because pay stubs are cumulative, keep your last pay stub for the year and put it in your tax return file, said Lisa Featherngill, a CPA in Raleigh, N.C., and a member of the American Institute of CPAs who works on financial literacy.

-- Do you need the electric bill for January 1995?

No. But some experts say you might want the past year's utility bills -- just in case some issues come up. Others say they don't hold on to any utility bills for longer than a month or so.

"As long as you're paying your bill and they don't turn off your power, you're good," Harano said.

One would want to keep records for utility bills for several years, if you needed a utility bill to back up a home-based business tax break.

-- How long do you keep a bank statement? ATM slips? Receipts?

Experts say keep bank and credit card statements for one year. Some keep bank statements for four years, but not 25 years. Many statements are available online.

Kelley Long, a CPA in Chicago and member of the AICPA, said you should retain ATM receipts or credit card receipts just long enough to make sure the correct transaction was posted.

Long said she keeps receipts for clothing until she's been able to wash or dry clean the item. If there's a quality issue, she'd have the receipt.

-- Some paper belongs in something more secure than a file cabinet.

That bottom drawer in a file cabinet is easily flooded when water hits a basement. Think safe deposit box or a fireproof box for very important documents.

Papers that deserve extra care: Policy statements for your auto and homeowner's insurance. The title to your car. The deed to your home. A birth certificate. Passports.

Take extra care with Social Security cards, even for young children. If you lose a Social Security card, you can get a replacement. But you'll need documents to back it up and you cannot file for a replacement Social Security card online.

More than one parent -- and I'll admit to this one -- will tell you about a mad dash to find that child's Social Security card once the teen starts driving.

Financial clutter is one job no one wants to tackle, of course. But it's got to be done much like a periodic purging of guest rooms, garages and closets. Or else you'll be flooded with paper.

Contact Susan Tompor: 313-222-8876 or stompor@freepress.com

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(c)2014 the Detroit Free Press

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Distributed by MCT Information Services


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Source: Detroit Free Press (MI)


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