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For New Clients: Keeping Personal and Financial Records

General Business News

June 1999

For New Clients: Keeping Personal and Financial Records

Personal records are a necessary part of life and, throughout it, many important documents and information will be required: birth, death, and marriage certificates; divorce papers; adoption papers; military service records; or other documents that are recorded by the government. Tax and financial records, such as charitable contributions, 401(k), and pension contributions and distributions are needed to track your assets so your estate can be properly administered and they are necessary to support any claims on your federal tax return. In addition, consumer records are needed to document large and small product purchases. Payments for services, such as home improvements, also should be carefully documented. Good records can save tax dollars too, by reminding you to claim deductions.

Setting up a system
It is important to remember that recordkeeping systems are as unique as those who use them. For most individuals, an essential ingredient and good way to begin is by setting up a checking account. If you already have a checking account, consider paying more than just monthly bills with it. Many consumers find that a canceled check serves as effective support in a dispute. Checks should be saved indefinitely for major purchases, disputed transactions, and legal matters. Consumers also should retain checks that evidence tax-deductible expenditures at least six years after the date the return was filed (or due date, if later). Some banks don't provide customers with canceled checks, but do keep other records to document the checks drawn against the account. In any case, a properly maintained checking account should record all income and expenses. When designing your recordkeeping system, remember to be simplistic and consistent. Don't allow documents to pile up over time; maintaining financial records should become a part of your routine so you can avoid searching for lost records in piles of old forms and receipts.

Maintaining Records
It is important to have a central location for your records. They should be easy to reach so that they can be maintained on a regular basis. Remember to prepare a letter listing all important documents and their location. Give this list to your next of kin, your attorney, CPA, or trustee, if any, or executor of your estate, and keep copies on file both with the records in a separate place. Avoid storing records in a place where they can be stolen or damaged by natural elements. Your records should be placed in a fireproof unit. For documents that would be difficult to replace, consider a home safe. Some individuals choose to keep their vital records in a safe deposit box at a financial institution.

Categorizing Records
Most records can be categorized as temporary or permanent. Temporary records are primarily those needed to support your income and expenses and should be kept for about six years. Permanent records are primarily those needed to support the cost of assets acquired and investments made. These records should be kept for life or until three years after the due date for the tax returns that include the income or loss on such assets as investments when disposed of or sold. Once you've organized your files, don't fall into the trap of saving unnecessary documents. Clean out your files periodically. Items such as accident reports and service contracts, for example, can be kept for six years and then can be discarded. On a more permanent basis, consumers should retain brokerage and fund transactions, stock option agreements, all insurance policies, certificates of deposit, custody agreements, and divorce decrees. House records, including deed, title, insurance policy, receipts, canceled checks for capital improvements, and documents pertaining to the purchase and sale of a home, need to be saved as well. Also falling into the permanent category are power of attorney, retirement and trust agreements, and wills. Photos or videotapes of valuables can serve as permanent records that are very helpful in the event of a robbery or a fire. And, include a list of your financial assets and financial advisers.

Consumer records
Consumer transactions are also important to track. Be sure to save contracts, receipts showing the date and amount of purchases, and product and service warranties. For convenience, while creating your consumer record file, you may want to maintain a separate list of repair and service telephone numbers for major appliances warranties and service contracts. You also should maintain a list of credit card account numbers and phone numbers in case the cards are lost or stolen. Warranties should be filed until they expire. For all credit records, be sure to retain any loan agreements, purchase slips, and billing statements until the debts are paid.

Personal records
For most personal records, all you need to save is the document itself, such as birth, marriage, and death certificates, adoption papers, or military service documents.

Tax records
You should keep proper records of all income, including all deposits made in your name. When documenting expenses, keep in mind that various new tax laws have limited the deductibility of many types of expenses. The deductions that remain require clear documentation. The responsibility for the accuracy of the return rests with the person who filed it. Below are some records that you will need to document your income and support any deductions you claim on your tax return. Be sure to save the documents listed in parentheses.


  • Records of earnings (forms W-2).
  • Records regarding, interest, dividends, and state income tax refunds forms 1099).
  • Records of self-employment (forms 1099, invoices, and receipts).
  • Alimony receipts (divorce decree, your ex-spouse's Social Security number, and bank statement).
  • Capital gains and losses (brokerage confirmation slips, receipts showing date that stock was acquired, cost and gross selling price of any stock,forms 1099-B).
  • Real estate rental income (lease agreements, closing statements with the cost of property, contracts and canceled checks reflecting improvements made, and information on depreciation from previous tax years).
  • Distributions from IRAs and retirement plans (canceled checks, withholding statements, and employer-supplied documents).
    Partnerships, S corporations, estates and trusts (K-l forms, and all investment records).
  • Nontaxable income and gifts (all information concerning Social Security, nontaxable receipts, records of the donor's basis, fair market value at date received, and tax paid on gift, if applicable).


  • Retirement plan contributions (contribution statements, a copy of the plan, and statement of actuarial assumptions).
  • Alimony payments (canceled checks, divorce decree or agreement, and your ex-spouse's Social Security number).
  • Medical/dental expenses (canceled checks, receipts, copies of bills, doctors' statements, prescriptions, insurance policies, records for amounts deducted by employers for medical insurance, and expenses for which you were reimbursed, car expenses, and gas mileage).
  • Taxes (W-2 forms for state income tax withheld, state tax return for additional tax paid and canceled checks, copies of estimated state tax returns, and tax documents supporting deductions for both real and personal property taxes).
  • Interest expense (all documents, including statements, notes, and canceled checks which outline the terms of a loan).
  • Charitable contributions (canceled checks, appraisals, any receipts recording the name of the charity and amount and date of gift, the value of any items received in return, out-of-pocket expenses, and gas mileage incurred while providing services to the charitable organization).
  • Casualty/theft losses (police and insurance reports, receipt for the item, and any documentation showing the fair market value when destroyed or stolen).
  • Non-reimbursed business expenses (credit card slips, all receipts, canceled checks, and a detailed diary of expenses).

After You're Organized
Organizing records may not be the most enjoyable task you undertake, but the rewards are considerable. Organized records will give you a full picture of your financial identity and will enable you to handle tax or financial disputes with facts and documentation to support you.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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