Episode 27: What Documents Do I Need to Keep On File?

Isaac Wright: Well, welcome to a Spring 2022 episode of Wright Money Tips. A lot of us now are just getting through tax season, and really what kind of spurred this episode is a question that we have a lot of people ask us every year. Things like, you know, when it comes to important documents, how many documents do I need to keep? What should I do? How long should I keep my documents for? And so really today, the conversation that we want to have is going to revolve around some general rules of thumb when it comes to your tax documents, legal documents and healthcare documents. So those three, what I would call the big three things that we see time and time again with people that walk in our door that are just a little confused about how many documents and where to keep them and all the above.
So we’re going to have a really pretty pleasant conversation today with Mr. Aaron Reed. Aaron, you know, when we sit here and we look at this and I think more importantly, I think we start with tax documents and with people kind of getting through the tail end of tax season. Let’s cover the basis on some general questions.
So this is going to be a very basic kind of show today, but I think it’s going to be very powerful because these are things that I’m sure you’ve asked yourself. Number one is when it comes to your tax returns in general, how many years of tax returns should someone keep? And maybe let’s just have a conversation about when that may change. Sound good?
Aaron Reed: Yeah, absolutely. I think a general rule of thumb for most individuals is, if you have special deductions or special filings, then you may want to keep them for up to seven. But the general rule of thumb is three years for an individual with a simple tax return, business owners is typically about four years.
Isaac Wright: And those are just the standard rules of thumb. So let me just kind of recap this. Basically, general returns, and when I say this as your simple returns are three years, business returns four years. If you’ve had maybe an audit or a special situation that may be six, seven years kind of in that zone, for all of you listening.
You know, let me just say this to you directly because I’m a business owner, obviously. You’re going to have certain circumstances that you’re going to need to be able to ask maybe your accountant sometimes that directly, but it’s amazing to me, how many people from a financial perspective, ask that question of us.
So, I’m glad we’re passing this on to our listeners and our viewers. If you have any questions related to, and a lot of you right now are getting your tax returns. We’re not going to talk about how to be able to improve your taxes today, but if you have any questions around your taxes, let us know because it’s amazing how everybody right now is so concerned with everything going up. Your gas, your food, your groceries, and we want you to make sure you’re keeping your documents in good order. But also, we’re here to help you with any questions related to maybe how to minimize some of your taxes as well, especially when it comes to your investments or your portfolio.
Aaron, let me ask this too. Is there any type of tax document in your opinion, that you’ve seen that gets overlooked before we move on to other types of documents? Anything you want to say about the tax situation before we wrap up?
Aaron Reed: You know, it’s the standard stuff that you should keep, obviously 1099s, W2s. They typically don’t get overlooked, but you need to hang onto those. If you have certain expenses, you need to keep the receipts as proof of those expenses in case you ever have to prove it to the IRS. Mileage logs, a lot of times get overlooked. They can be, that can be something. Those are just a couple of things I can think of off the top of my head.
Isaac Wright: Yeah, I was going to say the last thing, if you’re a business owner and especially if you’re taking a mileage deduction, I haven’t had this in a long time, but I had somebody as a business owner had that happen about 10, 11 years ago. Had to kind of go in and recreate a mileage log.
Aaron Reed: I’ve seen it happen.
Isaac Wright: Talk about fun. That’s a great thing to be able to do.
Aaron Reed: It’s not a productive use of your time. It takes quite a bit of time to go back and figure out all those miles. It’s a lot easier to just try to keep it current.
Isaac Wright: And again, a lot of you guys, just want to be clear. Trying to give you some general rules of thumb about what to keep, maybe how long to keep them for. Let’s move on to legal documents and maybe even to some degree what I would call citizenship documents or, you know, things like social security cards and things like that. What I want to cover is what are some of the common denominators around legal documents? And just go ahead and pick up from there. I think a lot of people would like to hear this relative to what we see that come, let’s call it, that people that come in the office that need.
Aaron Reed: One of the most common questions that we get with the estate planning documents and citizenship documents and things is just, you know, what do I do with them? What’s the best, where’s the best place to keep them? I think it’s important to have some backup plans in place.
So, of course you want to keep your documents in a safe and secure location, whether it’s a safety deposit box or a safe that you have at your house, as long as it’s fireproof. But we also, for our clients, like to keep a digital copy in an encrypted cloud in case something were to happen and they were to lose access to their documents or they get destroyed or lost. We’ve always got a backup for them.
Isaac Wright: Awesome. So, let me kind of give you a quick story here. So, a husband and wife are traveling out for about two weeks and unfortunately, one of them had a pretty bad disability or type of situation that they couldn’t really act on their behalf there for a bit. And they were able to go in through our program, access her power of attorney that allowed the husband to be able to expedite some of the things that needed to get done.
So, I’m not going to go into all the details, but I want you to understand what I’m saying is when it comes to your legal documents, maybe again, we’ll talk about other documents here in a second, but legal documents like your will, your powers of attorney, especially your powers of attorney and medical directive, those are things you always want to be able to have access to. If you are able to keep those electronically, you have access to them everywhere. If it’s set up correctly versus keeping it just in a safe. So, I’m glad you brought that up. We offer that. We do that as a part of our services here at Financial Dynamics.
Like I’ve said, we’re not sitting here just giving you access to the next hot stock tip. It’s really how to maintain your lifestyle and be able to take care of yourself and your loved ones, especially if something happens. But you know, Aaron, I know you’ve had, again, let me put it this way. I think in the realm of being able to sit down with somebody, you’ve had a lot of people that have given you very positive feedback about offering that service.
Aaron Reed: Absolutely. Just about all of our clients take advantage of that. There’s no real reason not to. And another thing that you brought up was that advanced medical directive. That’s sort of a frequently overlooked document. Clients say, yes, you know, I’ve got my will in order. Everything goes to my wife and same with hers, everything comes to me. But you’ve got to have that advanced medical directive in place so you can make decisions if you need to.
Isaac Wright: Aaron, I think a lot of what we’re covering here makes good sense. And you know, when I said citizenship documents, let me be a little bit more simple here. What kind of general documents like a social security card, what other documents would you say you would want to, not just have safe, but again, maybe electronically accessible?
Aaron Reed: It’s very common for our clients and it’s recommended for them to keep social security card, passport, birth certificate. Even if you’ve had a family member pass away, you need to hang onto the death certificate. Any of those documents that if you needed it, it would be, you know, some trouble to go online and find it and get it in the mail. All of those type of documents are very good to have at your fingertips in a secure, in a secured online way.
Isaac Wright: Well, you know, when you say passports, I keep thinking to myself, they keep changing the rules with TSA and everything else. So, doesn’t hurt to have that if you’re traveling, especially.
So, you know, again, we’ve talked about tax documents and giving you kind of a brief overview of some legal documents. Maybe a more important thing to say is how to store your legal documents. And everybody realizes legal documents are important.
Last, but not least, just a quick discussion on healthcare documents. When I say this, it kind of parlays into a little bit about maybe what you would want to keep healthcare wise from a tax perspective. But also too, just so you know, other types of IDs, things that you’d want to keep in a secure place, not just necessarily one copy in your wallet. Let me just open you up to that and see what you have to say.
Aaron Reed: Of course, social security card falls into that. You know, each year you get a Medicare summary notice is really good to hang onto those. Each year you have to have a certificate that shows you’re eligible for coverage. That’s a tax document that you’re always going to need. So that’s another good thing to keep in there.
Isaac Wright: You know, when we talk about Medicare, so for those of you listening, Medicare typically is about 65 and older, but some people are on disability Medicare. I know one thing we’ve talked about before though, is in the first year of Medicare, especially, is the year where you do want to keep kind of like those EOMB medical notices, you know, when you get kind of a bill in the mail, things that you want to keep track of. Medicare does a really good job of paying a lot of expenses, but still, that first year is probably a great year just to make sure you keep some of that too, so you get a lay of the land.
Aaron Reed: And nobody’s going to keep up with it quite as well as you to make sure that, you know, you get everything that you’re supposed to be getting benefit-wise. We can help with that too of course.
Isaac Wright: Also, real quick, as far as medical expenses. So, we’re sitting here talking about keeping these forms again, especially that first year. But let’s say regardless of Medicare, a lot of people dependent upon if they have a big medical issue, have to consider taking potentially a tax deduction on their medical expenses and or maybe adding money to their, their health savings account. You know, those are going to be documents that anything that you’re deducting, would you agree that that needs to be kind of a, what I would call at least a place that if you get audited, you’re going to want to know where those things are at?
Aaron Reed: Yeah, absolutely. And that also brings up another point that a lot of clients are taking advantage. There are a few ways that you can fund an HSA even after you’ve retired already. There are some rules around it, but a lot of times clients can take advantage of that.
Isaac Wright: Hey, listen, we’re not going to make this a long and winded show today. We just want to kind of cover the basics of a general timeframe for your tax returns. Maybe more importantly, is keeping a document that’s important to you, whether it’s a legal document, tax document, or healthcare document electronically available to you. It’s one of the services we have here, Financial Dynamics. But again, more importantly is just thinking outside the box of what makes your life easier. So, on today’s show Aaron, I think we’ve covered a good lay of the land. We want to thank you for joining us today. And we look forward to seeing you soon.
If you have any concerns or questions, you can visit wrightmoneytips.com to request some time on our calendar. Or please subscribe when visiting wrightmoneytips.com to receive notifications on new episodes, our newsletter, and even upcoming events.