Tax paperwork piling up? Here's a solution

May 14, 2011 

With tax season over -- unless you filed for an extension -- now comes the really difficult decision: What do you do with those tidy piles of paper? What should you toss in the trash, file or shred? What do you keep, in what form and how for how long -- three, four, five, six or seven years?

These questions come up frequently, especially with real estate documents. So here is how we solved the problem and condensed the paper monster to eight boxes. The first seven boxes represent each of the last seven years; the eighth is the "Keep Forever" box.

Why did we decide on boxes for only the past seven years? Various sources recommend keeping different documents for different periods, so we chose the longest recommended time. Remembering to throw away different documents on a complicated schedule just didn't work for us. It was easier to know we could throw away the entire box -- after seven years.

So take those tidy piles you've organized for tax season, put them into envelopes and label each. Then just start stacking them into the annual file box. Now when you need something, you only have to search one envelope in one box. At the start of the eighth year, you can shred the contents of the oldest box and reuse it.

In the "Keep Forever" box are important documents such as birth certificates, expired passports, death certificates, life insurance policies, copies of powers of attorney and divorce documents.

This box can also hold other items until needed, for example:

• Separate copies of any IRA contribution forms (5498 and 8606). This makes certain you don't accidentally toss documentation that helps you pay less tax when you access your retirement funds.

• Real estate records that help track your "cost basis." While many homeowners currently don't have to worry about capital gain on their principal residence, tax laws can change, and reconstructing that information later could be difficult.

Depending on the amount of documentation you have, you may have a "Forever" safety deposit box, plus a regular file box. Just mark or color-code the file box separate from your annual boxes so it doesn't get thrown away or shredded accidentally.

If you store documents in a safety deposit box, make certain you have an alternative signer who can access the box if you die or are incapacitated. An alternative signer prevents family members from needing a court order, which takes time, to access important records.

If you want to take organization a step further and reduce the amount in boxes, consider scanning and transferring important documents to a disk. Many newer all-in-one printers can scan documents to your computer to be saved to a disk. Disk storage takes up less space, and the files can be copied and saved in multiple locations. That way if something happens to one copy, you have a backup.

One caution: digital technologies change over time, and you don't want to be caught with important papers stored on the equivalent of an eight-track tape you can't play.

We do have two other boxes: the shred box and the recycle box. The shred box is for items that contain personal information. For example, you can throw away pay stubs once you get your W-2 (and you're sure the information matches). Credit card statements can be trashed when the next statement arrives, unless the statement has a business expense you want to document. Many banks, credit card companies and investment brokers keep copies of statements online, so you don't need to keep monthly statements, just the annual ones.

With identity theft so rampant, having a cross-hatch shredder offers some peace of mind. If you don't own a shredder, take advantage of organizations that offer that free service. Northrim Bank and Shred Alaska recently sponsored a Free Shred Event for up to three boxes.

The "Recycle" box simply catches the multitude of miscellaneous receipts, junk mail, newspapers, magazines, household recyclables and shredded documents. If you are part of the municipal recycling program, you only have to wheel it out to the curb.


Clair and Barbara Ramsey are local associate brokers specializing in residential real estate. Their column appears every month in the Daily News. Their email address is info@ramseyteam.com.

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