Spring is the perfect time for a fresh start, and what better way to refresh than by decluttering your documents and protecting your identity? As we embrace the season of renewal, many of us focus on cleaning out our homes, but it’s equally as important to tidy up our digital and physical spaces. Sorting through your paperwork, organizing important documents, and safely disposing of sensitive information can not only create a more organized environment but also safeguard you from identity theft.
A great place to start is with your tax returns. These serve as an anchor for your financial record-keeping because they provide a snapshot of your income and potentially deductible expenses from the previous year. It’s a good rule of thumb to retain tax returns for at least seven years, especially if you’ve claimed a loss from worthless securities or bad debt. However, holding onto your tax returns for 10 years is considered a more conservative approach, ensuring that you have a full picture that goes back far enough to cover any potential inquiries from taxing authorities or to address any discrepancies that may arise, such as audits, amendments, or other financial reviews that may require historical documentation.
Along with your tax returns, it’s essential to keep other related documents that help complete your financial picture. One example of this is to make sure to retain any documents used to prepare your tax returns, such as receipts for deductions or year-end investment statements. These documents, along with checkbook registers and other important records like medical payment receipts, contribute to keeping track of your financial activity throughout the year. It’s best to keep these documents organized by year in one folder, making it easy to reference them when needed.
Not everything needs to be kept, however. For instance, utility bills generally don’t need to be saved unless you’ve used them for a deduction related to an investment property. When it comes to older investment holdings, the key document to keep is one that details the cost basis, as this will help you with tax reporting when you sell those investments. Another approach you can take is to streamline your record-keeping by retaining only the year-end statement, rather than storing an entire year’s worth of account statements. You can then file this year-end statement alongside your tax return for easy access and organization. While the recommendations made in this blog help organize your finances, it does not necessarily provide a complete financial picture. If you would like to explore your situation with a financial advisor I invite you to visit www.jgua.com for a no-obligation consultation.
In addition to organizing your paperwork, spring cleaning is also an opportunity to review your security practices and protect yourself from identity theft. Shredding or burning old documents before disposal is essential to safeguard your personal information. If you haven’t already, consider freezing your credit to prevent unauthorized access to your credit report. Changing outdated, easy-to-guess passwords and replacing them with strong, complex ones is another important step to secure your online accounts. It’s also a good idea to set up monitoring systems for your bank, credit, and investment accounts so you can be alerted to any suspicious transactions.
Spring is a time of renewal, and just like you refresh your home, it’s the perfect moment to refresh your financial documents and security practices. By taking the time to clean out old records and protect your information, you’ll enjoy the peace of mind that comes with knowing your finances are in order and your identity is secure. So, dive into this spring cleaning task and enjoy the benefits of a fresh, organized start.
