how to organize financial records

Hand flipping through file drawer with colorful folders.

How long should you keep financial records?

How should you organize financial paperwork at home? 

Then again, why keep financial records at all?

Well, there's the little consideration of being prepared for tax time, for starters.

If the Internal Revenue Service has a question about an item on your tax returns, keeping tax records will leave you prepared to answer it.

Here's how to organize financial documents to help make quick work of tax time.

Why Financial Records Are Essential

In addition to having records for "proof" in the event the IRS has a question about an item on your family's tax returns, you'll often need financial records for insurance purposes or for getting a loan.

Good records will help you identify income sources if your family receives money or property from a variety of sources, such as a family trust. Organizing expenses will help you determine which fees you might be able to claim as a deduction.

Property records have essential details like the original cost, and they verify any improvements you have made. 

New Year? New Files! As a general rule, get a jump on the paper chase by beginning new folders each year and archiving the past year's folders. 

You'll need to create a separate filing system or area for each type of paperwork to be culled and considered. It can be as simple as assigning each paperwork type a unique color. 

Here are the major categories to be conquered and how to organize them.

Organizing Financial Records

Here's what you need in your financial files:

Financial cheat sheet. This is a guide to all your papers, financial advisers, documents, location of safe deposit box key, and other information. It should include copies of what's in the safe deposit box, and what to do - and who to contact first - in case of emergency.

If anything happens to you (or the bill payer), this document can help the surviving spouse through the first few days.

Safe deposit box or fireproof strongbox. What goes in here? Anything that's essential and would be very difficult to replace. Usually, the list includes titles; birth, death, and marriage certificates; copies of wills and deeds; inventory tapes of household goods for insurance purposes, and passports.

Bank and credit card statement folders. Easy, right?

Bill folders. Title these so that you can get what you need, fast. I name files in a way that makes sense to me and would (hopefully) to anyone else on the prowl for them. For example, although our gas bill payment goes to "Southern California Edison," I file the gas bills under "G" in a file tagged "Gas Company" instead of "S" for "Southern."

Credit card list.  Compile a full list of the names and numbers of each credit card in the family. (This includes bank card numbers.) Include the toll-free numbers for reporting loss or theft of said cards.

Credit card receipt catcher. Reserve a folder, envelope, drawer, or other dumping ground for family credit card receipts and online order confirmations.

Estate planning folder. Even if you're only planning to plan your estate, you've got a place to file the information.

Investment folders. In these folders, store information on stocks, bonds, and mutual funds. Your records should show the purchase price, sales price, and commissions. They may also show any reinvested dividends, stock splits and dividends, load charges, and original issue discount.

Life insurance policies folder. Store life insurance papers here, or you can put these important papers in your safe deposit box or strongbox.

Loan and mortgage folder. File these papers by bank or lending institution name or simply under "Home Mortgage."

Major expenditure receipt folder. You'll want to put the purchase information for your new Sub Zero fridge and other expensive belongings here.

Pay stub folder or envelope. Each pay period, stash your stub.

Tax returns folder. Anything you'll be using on your income tax return should go here.

Work benefits folder. Just in case you're having trouble sleeping some night and are desperate for something to read, put all those work benefits documents here,

And a word for the tech-savvy: If you already have many of these "papers" stored on a computer program, bravo! You've saved yourself some serious file space.

But you're not out of the woods when it comes to a few specific papers you'll need to keep in your possession, anyway, such as proof of payment, receipts, and deeds.

How Long to Keep Financial Records

And just how long should you keep most of these papers?

The Internal Revenue Service (IRS) has a three-year statute of limitations on auditing a return. Keep all records of income or deduction expenses for three years.

Shelves with neatly filed binders and a potted plant.

If you failed to report more than 25 percent of your gross income, the government would have six years to collect the tax or start legal proceedings.

Filing a fraudulent return or failing to file a return eliminates any statute of limitations for an audit by the IRS.

If you hire a tax specialist, check to see how many years you should keep your records. You may have to keep them - period. You'll also want to keep records that show the original cost or value of your property.

Also keep a record of home improvement costs to offset or reduce capital gains tax if your home, land, or property is ever sold for more than its original price or value. 

However, your insurance company or creditors may require you keep certain records longer. And, of course, keep documents relating to property until the period of limitations expires for the year in which you sell or otherwise dispose of the property.

Enjoy this page? Please pay it forward. Here's how...

Would you prefer to share this page with others by linking to it?

  1. Click on the HTML link code below.
  2. Copy and paste it, adding a note of your own, into your blog, a Web page, forums, a blog comment, your Facebook account, or anywhere that someone would find this page valuable.