Ditch It & Shred It

Kindness meter: 4 done, 96 to go, 11 days to reach 100. Contest meter: 5 days until the official “what do these three things have in common” starts.

A Cape Lion, A Labrador Duck, and a Dodo are all extinct. Tweedledee & Tweedledum, Castor & Pollux, & Minneapolis-St. Paul are all twins. Today’s questions? What do the Original Star Wars in Theatres, Roots on TV, and Annie on Stage, have in common? What do Christmas, Easter, and Virgin have in common?

One of the questions I get asked a lot in my business is, “how long do I have to keep my records?”, followed by “what should I shred?” I thought I would share how I usually answer those questions.

A few things first. Laws are often different by state so before following any advise that I give you here check with a local professional. Second, there are two main reasons that you would keep records and those are for tax purposes and for legal purposes. I am not a lawyer, nor do I want to be one so before shredding or throwing out documents for tax reasons check to make sure there aren’t any legal reasons that you should keep the documents. One glaring example of a legal reason to keep records is a lawsuit where wages might come into play, if you had your w-2 forms for ten years it would give a nice history of your earnings and a possible projection of what you might make in the future. A legal reason to keep the documents ten years, when for tax purposes you could have ditched them long before.

Also follow the when in doubt rule. Also known as the better safe than sorry rule. If you aren’t sure if you should shred a document or just throw it away, shred it. If you are not sure whether or not to keep a document, keep it.

For tax purposes, documents fall into two main categories. Fixed Documents. Annual documents. An example of a fixed document would be the settlement statement when you purchased a house or the contract when you purchased a car. Examples of annual documents are W-2 forms, annual mortgage interest statements, annual pharmacy statements and so on.

The IRS can audit your tax return for three years after the due date of the return. For instance your 2008 tax return was due 4-15-09, the IRS can audit your return until 4-15-12. UNLESS, FRAUD IS INVOLVED. UNLESS YOU FILED AN EXTENSION. If fraud is involved the IRS can audit it forever. If you filed an extension of time to file your return you willingly gave the IRS an additional six months to audit your return. Since I love everyone here and know that none of you would ever consider defrauding the IRS you should keep all *annual* records that you used to prepare your 2008 tax return until 4-15-12 (or 10-15-12 if you filed an extension.) Keep all *annual* documents that you used to prepare your 2007 return until 4-15-11 (10-15-11 for extension filers.) For 2006 returns keep all *annual* records until 4-15-10 (or 10-15-10 if you didn’t get your chit together and filed an extension.) Assuming that you didn’t file an extension you can now ditch all *annual* records used to prepare your 2005 and earlier tax returns.

Fixed documents, like house purchase records, car purchase records, etc should be kept for four years after the year the asset in question is either sold, given away, retired, reported lost, or stolen. Sold your house in 2008, keep both the purchase and sale documents of that house until at least 4-15-12,

What should you shred? Basically everything with an address, a name, a social security number, or an account number on it. A bank account number, a credit card account number, etc. About the only thing I don’t shred are credit card receipts. In Oregon, the law requires anyone accepting your credit card to show ONLY the last four digits of your credit card number on the credit card receipt. Since it would be almost impossible for anyone to figure out your credit card number with just the last four numbers, I just cross out the name on the credit card receipt and ditch it. Your homework today is to check your last credit card receipt and to see how many of your account numbers appear on that receipt and then report to me what your state does.

Any questions? You may be tested on this later. And what do the Original Star Wars in Theatres, Roots on TV, and Annie on Stage, have in common? What do Christmas, Easter, and Virgin have in common?