Cleaning your financial house: 4 items to keep, 4 to shred

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By Geoff Williams

Somewhere nestled between your resolution to lose 20 pounds and the one to finally clean out your basement is probably a resolution to organize your home office. If you're staring at piles of paperwork and wondering what's safe to destroy and what you should hang onto, here are some guidelines.

What to Keep

1. Tax returns. Save your returns for at least the past three years, and maybe more. "If you file your return on time every year by April 15, then you would need the records for 2014, 2013, 2012 and 2011," says Ernie Almonte, chairman of the National CPA Financial Literacy Commission. The reason? You'll need them if you're audited. If you think (or know) you underreported a lot of income, keep six years' worth of tax returns, he advises. He adds that generally during an audit, the Internal Revenue Service will request the extra returns if you've underreported income by more than 25 percent. And if you employ any domestic help, such as a nanny or a full-time housekeeper, "you should keep the employment records for four years after the tax was due and paid," he says, adding, "There may be reasons other than tax reasons for keeping your records for a longer period. You should consult with an attorney if you have any ongoing or potential litigation." In other words, unless your taxes are simple and you know that there's no chance of serious errors, hang onto your tax returns for at least a decade.

2. Investment records. Not forever, but retain them at least as long as you own the investment, says Jake Loescher, a financial adviser at Savant Capital Management in Rockford, Illinois. "Until you sell the fund, stock, bond or other security, it will be helpful to maintain these records to determine gain or loss upon sale, which ultimately determines the tax ramifications." Of course, you may not need to keep paper copies of your records if your brokerage firm allows you to view them electronically.

3. Pay stubs. Some people trust that the system involving employer, payroll company and IRS works, and usually, it does. But if you don't receive your checks via direct deposit, keep those pay stubs around for a year, Loescher suggests. "It's helpful to double-check your total income received on a pay-period basis against the income reported to the IRS on your annual W-2."

4. Mortgage-related papers. Bought a house? All of the paperwork you received at closing should live at your home, too. "Any documents related to property you have purchased, including loan documentation, should be kept until you no longer own the property," says Melinda Kibler, a certified financial planner in Fort Lauderdale, Florida, with Palisades Hudson Financial Group. And keep home improvement receipts, Kibler and Loescher say. Someday you may want to show them to a potential homebuyer.

What to Shred

1. Most receipts. Plenty of receipts can just be tossed in the trash rather than jammed in a shredder or ripped into pieces -– because they don't have your Social Security number or complete credit card number on them. But ideally, and if you're methodical about your finances, you'll keep all of your receipts for about a month before discarding them. "For bank account, ATM and credit card transactions, I recommend holding onto the receipts until the transactions are reflected on your statement. You can reconcile your statement against your receipts, and if reflected properly, then you can go ahead and shred the receipts," says Kibler. But there are exceptions. For instance, if you've purchased something big enough to insure, like a wedding ring, hang onto the receipt.

2. Some of your junk mail. As if junk mail isn't annoying enough, you should destroy some of it rather than tossing it in the trash or recycling bin, says Brian Berson, founder and CEO of FileThis Inc., an app that finds and organizes personal documents from your computer and some mobile devices. In particular, Berson recommends shredding preapproved credit card applications. Otherwise, typical junk mail can go into the round file as usual.

3. Bills. There are some exceptions, Loescher says. If you're running a business out of your home, you may need the bills for tax purposes. Otherwise, you don't need to keep these once they're paid. Just remember to shred them so some enterprising identity thief won't happen upon them.

4. Digital media. Don't forget your old laptop or the smartphone you're replacing -– those devices can have just as much important, financially attractive information to a criminal as your paperwork. You can't push an old computer through a personal shredder, but Berson says you could hire a professional service to destroy your old devices. "These days, most shredding services can destroy digital media," he says. You could, of course, use a hammer to mangle the device enough to discourage an identity thief from extricating your personal information, but using an electronic product recycling service is the more environmentally responsible way to go. It just isn't as much fun.
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