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Marc A. Hebert's Money Sense: Use systematic approach in record keeping to avoid headaches

March 16. 2018 8:08PM

Sometimes people groan when they think of record keeping and all the boxes of files that have accumulated over the years.

Just what is record keeping? It is a planned, methodical approach to collecting, filing and storing documents that are important to you and your family. Which records should you save, why and how long? A systematic approach to record keeping addresses these questions and has several major advantages including:

Time savings: Having a system means that when a document comes in, you know exactly what to save and where it goes. Without this, documents can be misplaced, leading to major headaches later.

Costs: A document might be needed long after it was originally obtained. Guarantees and warranties contain details that can be forgotten. The dreaded tax auditor might ask for records that just don't seem to exist. This can cost time and money.

Stress: Everybody experiences stress occasionally. Don't let misplaced records make it even worse.

Incapacity: While unpleasant to consider, incapacity can happen. During this time, it is very helpful if financial records are organized so someone can take over the job. Knowing where the important records are is a great start.

What to keep

Now that we have looked at the reasons why great record keeping is important, let's review what to keep.

Some records are too important to keep in a file drawer. These are the kind to keep in a safety deposit box or a home safe that is adequately rated to protect contents from fire, water, explosions, etc. Documents that need this extra protection include:

. Property deeds

. Trust documents

. Insurance policies

. Automobile titles

. Stock, bond certificates

. Will and estate plans

. Personal property inventory

. Marriage and birth certificates

. Military discharge papers

. Passports

You might want to keep copies of the documents readily accessable at home in case the information is needed quickly. If you keep the records on your personal computer, make sure to have a backup copy in a safe place.

While these are more permanent records, others may be kept for different periods of time. There are no concrete rules about how long records must be kept, so you must often use your own judgment.

Records that you might want to keep for one to three years include household bills, except those that support a tax deduction or expired insurance policies.

Tax returns and supporting documents, income and expense records, bank and credit union statements, brokerage house statements, canceled check and check registers, paid-off loan documents and personal property sales records are items you might want to keep for six to seven years, and perhaps longer for records of major purchases.

The long-term records include tax dispute records, retirement plan contribution documentation, investment records, medical histories, pension/retirement plan documents, and Social Security information. Also included in this category are home ownership/sale documents and improvements records. These will be needed if you ever sell the home. You might also want to keep these for seven or so years after you sell it.

It should be noted that the IRS typically has three years after a return is filed to audit a tax return or two years after you have paid the tax, whichever is later. If there was underreported income by at least 25 percent, the IRS can look back six years after the return is filed. There is no time limit for a fraudulent tax return. IRS audits require documentation, so be sure to keep permanent records. Canceled checks don't necessarily prove an expense - keep things like receipts and invoices as well.

If you have any questions on what to save, be sure to ask your tax adviser or certified financial planner.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at Your question and his response might appear in a future column.

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