It may not be possible to totally eliminate the clutter, but it can be tamed. A big part of what we do for our clients is basic organization of their finances. You really need to get a handle on the separate parts before you can make sense of the whole. So try a little spring cleaning.
Start with your 2007 tax return. You can get a quick idea of your income sources, the part from salaries, investments, outside gigs, etc. If you received a big refund or owed big-time this year, now is the time to rework how much is withheld from your paycheck. Before you put the form away, consider any changes in 2008 — a job change, a college graduation or new baby — and plan accordingly.
Tax returns really should be kept forever, in case of audit. The papers that support your tax return (1099s, W-2s, statements and receipts that prove deductions) you need to keep for six years. The IRS typically has only three years to examine your return for mistakes, but the window gets wider if it suspects deliberate misconduct. Better safe than sorry.
Go through the pile of receipts. Keep them until the warranty expires for big purchases. For tax deductible expenses, it is six years. Any statements from stock or insurance brokers that have transactions, keep for six years. You need to have documented proof for the IRS for the gains or losses. This stuff can be kept with the relevant return.
• Keep any medical bills for a year — unless you deduct medical expenses. Then it is six years and it goes with the return.
• Pay stubs can be thrown away after you confirm the W-2 is accurate. For 401(k) and IRA statements, toss after you check the year-end summary. Keep the year-end statements for your long-term files.
• Bank statements should be kept until year end to confirm your 1099. If there are taxable transactions, hold them for six years.
• Utility bills can be held until the end of the year if you track usage. If you deduct a home office, then it is six years.
• Only keep the most recent credit card statement after reconciling charges; six years for tax purposes.
Now throw everything else away. And sign up for electronic delivery of bills and statements. You can save a tree or two and clear off the desk. Then you will have room to start going through all those photos — digital, analog, video. It never ends.
Terry Davies is portfolio manager at Investment Management & Consulting Group, a registered investment advisor in Portland. IMCG provides comprehensive financial and investment guidance to individuals, families, endowments and businesses. He welcomes your feedback by phone: 800.605.6552, or email: tdavies@imcgrp.com. The analysis of the financial markets in this column is not meant as investment advice.