•Expenses and deductions: Save the statements and receipts of proof you’ll need for itemized deductions, such as charitable gifts, child care costs, medical bills, etc.
•Investments: Consider creating separate files for deductible/tax-deferred investments, nondeductible investments, and taxable investments. If you’re unsure, a CPA can categorize them for you.
•Ensure you have proper documentation of gifts and donations: When making a large gift, you may receive several letters from an organization thanking you for your gift. However, not just any letter will do. You must have in your possession a letter of substantiation for the gift before filing your tax return.
•Keep secure copies elsewhere: It is a good idea to keep secure copies of original documents and electronic copies in a trusted, secondary location to prevent the loss of your records due to property damage. Keep irreplaceable documents in a safe deposit box, a fireproof safe, or backed up electronically to your computer, the cloud, or an external hard drive that is encrypted.
•Keep your security software up to date: Be sure to continue regular updates of your electronic security software if you keep your personal financial records on your computer.
•Know what to keep and for how long: Because the IRS and the state can examine your personal income tax return up to three years following the filing date, the PICPA recommends saving records that support your tax returns for the previous three years. This includes bills, credit card and other receipts, invoices, mileage logs, imaged or substitute checks or other proof of payment, and any other records to support deductions or credits claimed.
Permanently keep items that would be difficult to replace. Those include completed income tax returns, legal documents, retirement and pension records, audit documents, trust documents, and vital records such as birth certificates, marriage licenses, divorce decrees, etc.
•Remember to shred: When you’re ready to purge documents that are no longer needed, but sure to shred them to avoid theft of your personal information.
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