Bringing Order to Piles of Paper
A little organization will help you decide what to save, and for how long

By Michael M. Murray
The Plain Dealer/Personal Finance (April 1999)

Each day financial records besiege you — everything from electric bills to investment
statements. Maybe you file them neatly in hanging folders in four-drawer cabinets, or
maybe you get by with rubber bands, envelopes and shoeboxes.

Regardless of where they're kept, the time will come when you'll want to toss the
old ones to make room for the next onslaught. Do you do this routinely or do you
keep everything forever, thinking you might need a document someday?

"I have clients who claim they don't have a place to put all of their documents," said
Jeffrey Folkman, a partner with Hahn Loeser Parks, a Cleveland-based law firm.
"Some hardly save at all."

As a rule, financial experts say you can throw out an old electric bill when the new
one arrives, assuming you agree with the charges. But you'll want, to hang onto any
financial records with tax or legal implications. Those include brokerage statements
and home improvement contracts. Even if you organize, plan and track your
finances with Quicken or other accounting software, you'll want to keep a paper trail.

Tax returns
In most cases, you won't need to keep them past three years — the normal time it
takes the Internal Revenue Service to contest a tax return. But some financial experts
recommend keeping the returns permanently, and the supporting documentation for
at least seven years, in case the IRS ever accuses you of fraud, grossly understating
your income or failing to file a return in the first place.

For more information, get Publication 552 from the IRS, which includes a host of
recordkeeping guidelines.

Utility bills
If you don't want them on hand for home-office deductions, you can pitch them.
Certainly, 12 months would be the extreme, said Mike Lesjak, vice president of
Lesjak Planning Corp. in Westlake.

If you're planning to sell your home, you'll want to keep some old gas and power
bills around to give prospective buyers a sense of utility costs. In that case, you
might consider keeping three year end bills, particularly if they chart natural gas
and electricity usage, Lesjak said.

Unless you're tracking calls and costs, you really don't need to keep phone records.
In the event of a legal matter, you could retrieve bills from your phone company, he
said.

Investments
Keep the first statement as well as year-end statements from mutual funds, stocks
or other investments. That way, you can determine the cost basis for taxes.

If you sell the fund or individual stocks, retain that transaction record for at least
seven years, said Mark Jeffries, regional director of the Financial Network
Investment Corp. in Rocky River.

Checking accounts
File the monthly statements and canceled checks for a year. At that point, you should
only need the annual statement.

However, some of the canceled checks might be needed for tax purposes, so you
should keep them for 'up to seven years,' said Mark Mussig, associate director of the
tax department in the Akron office of Saltz Shamis & Goldfarb.

Receipts and warranties
How long you should keep a receipt depends on the store's refund or exchange policy.
If you just bought your niece a new pair of jeans, make sure they fit before throwing
away the receipt.

Similarly, file all warranty documents in a separate folder while the warranty covers
the product, Jeffries said.

Insurance
Generally, you only need to keep your existing policy. When you get a premium notice,
file it until the next one arrives, Lesjak said.

It's not a bad idea to retain old policies as well in case someone takes legal action
against you, Folkman said, noting that you'll want to know what coverage you had at
the time.

Mortgage
Chances are, your mortgage papers take up more space than most of your other
financial records. Get used to seeing them in your files.

If you buy a home and sell it years later, don't throw out your copy of the deed just
to free up some space. Because of a title dispute, someone could always question
whether you were the rightful owner, Folkman said.

As with insurance policies, Jeffries said, you should let your children or executor
know where to find these records.

Medical records
Generally, you'll want to keep these records handy to make sure you're billed
directly for a visit to a doctor, outpatient surgery, tests and other health-related
services. When you're satisfied with the amount you owe, then you may not need
the records, Folkman said.

However, if you include medical expenses as a tax deduction, you should keep all
of the paperwork for seven years.

If you're injured in an auto accident, you can file a personal injury lawsuit for up to two
years, which means you should keep all of your medical records. For medical
malpractice, you'll have up to a year from the time you discover the problem,
Folkman said.

Contracts
Keep the agreements long after the work is completed.

For, example, if a driveway contractor refuses to honor a warranty, you could take
him to court up to 10 years after seeing a defect, Folkman said.

Credit-card statements
Unless you keep the statements as a basis for a tax deduction, financial experts say
you should keep them only as long as you want.

You might want to file them for a year to track purchases, Lesjak said. On the
tax front, you'll want to keep your records for seven years. For example, some
people charge charitable contributions on Dec. 31.

For these and other statements, records and documents, it's important to fill folders,
drawers, boxes and other items on a regular basis. If you don't know how long you
should retain a financial document, ask your financial planner, accountant or lawyer
for advice.

Murray is a free-lance writer in Garfield Heights.