Spring clean your financial records

Now's the time to get organized
By: Rashida Lilani Granite Bay View Correspondent
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Rashida Lilani is the owner and principal of Lilani Wealth Management in Roseville. She can be reached at

or (916) 782-7752.


It’s springtime, and “spring cleaning” is on the mind. Whether it’s getting that yard back in shape or cleaning the garage so you can fit in a car or two, there are always a few projects to do around this time of year. De-cluttering your financial records should be on your to-do list.

I often get asked by clients how long they should keep tax returns, investment statements and other financial records. Here is a general guideline on retaining financial documents, based on recommendations by the IRS and several professionals in the industry.

For tax-related paperwork, the IRS says to retain tax returns and supporting documents for three years from the tax-filing deadline for that return. Three years is the period of limitations during which you can amend your tax return to claim a credit or re-fund, or the time during which the IRS can assess additional tax. Most accountants, however, advise that you retain tax returns for seven years. That includes keeping supporting documents for in-come and deductions, such as W-2s, 1099s, 1098s and charitable donation receipts. There is no period of limitations if the IRS suspects fraud or if no return was filed.

As for bank and credit card statements, keep a year’s worth in a current file, unless they may be needed to support tax filings. Credit card statements may be needed to dispute charges or provide proof of purchase.

And then there are all those investment documents. I recommend keeping the applications and other pertinent paperwork used for establishing the accounts, as those usually include contractual agreements. Monthly statements should be retained until you get a year-end statement and then off to the shredding basket they go. Keep at least three years’ worth of statements. If the investment is not a tax-deferred qualified plan and you’re incurring taxes as you go, keep records for at least as long as you own the investments, longer if needed to support a tax return.

The burden of proof to provide the true cost (cost-basis) is on you. When you sell the investments, you generally pay taxes on just the gains/appreciation, not on the full account value, so make sure you keep all records that would help calculate the exact cost of your investments.

Custodians will usually keep all records. But if there has been a change of custodian, or if you’ve changed brokers, the information may not get transferred over. Besides, with so many banks having gone under in the last few years, it’s best to have your own filing system and not depend on an entity that may not always be around.

In the case of qualified or retirement accounts, contributions are generally made pre-tax, hence there is no need to establish basis. Keep records of all contributions made into the retirement plans.

Saving statements digitally is a newer, but far more convenient and efficient way, of storing documents. Use an external hard drive or USB flash drive and store in a safe place. Make sure to periodically check your digital storage system. With changing technology, your filing system may become obsolete. Remember those floppy discs? I do!

Preparing an emergency grab-and-go file is also a good idea. Gather birth certificates, Social Security cards, passports, lists of bank accounts and investments into one file called “Vital Rec-ords.”

I provide my clients with a “Life Planning Checklist,” which provides a quick reference guide to the location of important documents, including wills and trusts, and your safe deposit key. Give a copy of such a list to your loved ones.

Once organized and caught up, make sure you stay organized and de-cluttered, and follow the system that works best for you.