$ ?s: Help Me Conquer the Clutter

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$ ?sQ: My husband hasn’t gotten rid of a single bill or financial statement during our entire 18-year marriage! He received a shredder from Santa this past Christmas, and I am ready to get started, but I want to know what, if any, of this paperwork I should keep.


Living in a Tinderbox

$ ?s by Matthew Illian, CFP®

Dear Tinderbox,

It’s a good discipline to cull your paper statements annually to keep your life clutter-free. Your husband will likely be looking for a reason to say, “I told you so” if you go overboard, so be sure to follow these rules when purging.

1. Why store information that is easily accessible online? Manuals for appliances, software, and other equipment can all be found on the company website. Download the electronic file and recycle the paper copy.

2. After reviewing monthly statements for errors, purge paid utility, Internet, and phone bills. Recycle these unless you deduct these expenses for a home office.

3. Keep copies of anything that substantiates a tax deduction or credit. For most homeowners, this means keeping annual mortgage statements that report interest paid and any receipts for tax-deductible improvements.

Note: Business owners need to keep even more, including items relating to gross receipts, purchases, expenses, and travel and employment costs.

4. Personal bank and credit card statements can all be shredded once they have been reviewed for accuracy. Investment statements are a bit trickier because they often hold valuable basis information. Basis is the original cost of investment, adjusted for factors such as depreciation, dividends, and cost of improvements. Year-end statements are typically all that is required.

New IRS rules have gone into effect that require broker-dealers to report and maintain cost basis on your securities. Until Schwab, Fidelity, and all the others work out the kinks, hold on to these statements as well.

5. Keep records of anything that pertains to the basis of other investments. You will most likely have to pay tax on the difference between your basis and the sales price of an investment (realized capital gain). So keep most real estate records and business investment records.

6. Keep your tax returns. Sure, the IRS can only go back six years if you are accused of under-reporting income. But there are more reasons to keep a return than simply to keep your backside out of jail. For example, information on Form 8606 never expires and may hold the key to whether your IRAs are taxable or not.

7. Keep your personal health medical records. Your medical history will play an even more important role in the future of insurance than it has in the past. And we are still many years from having these records posted in an online repository. Only keep the paid bills if they relate to a tax deduction you have taken (and keep this with your tax files).

8. Keep your legal documents such as birth certificates, passports, trusts, wills, powers of attorney, and other documents that would be difficult or impossible to replace in a safe box. You can pick up a fire-safe box from a discount store for under $30.

For those that do not own a personal shredder, your local office supply store can provide the service for between 59 and 99 cents per pound. I now regret purchasing the most basic shredder model that must be fed manually no more than four pages at a time and often gets jammed. If you’re planning to purge, use a commercial shredding service or plan to spend at least $150 on a higher-end shredder.

At this point, if your “keeper pile of papers” is not easily manageable, digitally scan them. You can use a scanning service, but you will likely find it more affordable to purchase a Fujitsu scanner and do it yourself.

Following these rules will help you conquer the clutter.

Happy shredding!

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Matthew Illian was a Wealth Manager at Marotta Wealth Management from 2007 to 2016. He specialized in small business consulting, college planning, and retirement plans.