If you resolved to tackle your tax return early this year (rather than the night of April 14), you might be going through your documents now. And you might be looking at the stack of documents from past years and wondering when you can toss them.
It’s a good idea to hang on to your tax returns forever, but you usually can toss supporting documents three years after you file a return. For more, see What to Toss, What to Keep by Laura Cohn in the February issue of Kiplinger’s Personal Finance. Laura also writes that you can create a digital archive of crucial records. Here are her tips:
One way to clear the decks: Go completely paperless by going digital. Electronic records are as legally valid as the original paper ones, so you can create PDFs or scan and save crucial documents.
Start with your tax return. Tax software includes a function that converts your return to a PDF. If you use an account-ant, he or she may be willing to convert it, encrypt it and provide you with a password to unlock the file. Some accounting firms let their clients access their returns online.
If you can’t create PDFs, you can scan records — such as mortgage documents, property-tax statements and thank-you letters from charities — and save them. And to stem the onslaught of paper, sign up for online banking and bill paying, including electronic delivery of your bills.
Your bank statements will reside on the bank’s Web site, although you may have to sign up to access them. The same goes for many credit-card issuers’ statements. If your bank or credit-card company keeps statements online for less than three years and you need them for tax purposes, you may need to print them, scan them and back them up.
Photo images of your records are memory hogs, so store them on an external hard drive (about $100). Be sure to keep key records in at least two places — on a hard drive as well as backed up on a CD or even at a Web site. Otherwise, if your computer crashes, your dream of having less paper could turn into a nightmare.
Source: Cameron Huddleston http://www.kiplinger.com/printstory.php?pid=19190