With some important documents, there's nothing like the original. Life will be easier if you keep these safe in your files.
Few documents are truly irreplaceable.
As I wrote in "Purge your financial paperwork," you can get new copies of birth, death and marriage certificates. Your insurers have copies of your policies. Banks, brokerages and credit card companies can send you reprints of your statements for at least the past six years, which is as long as you're likely to need them.
But sometimes there's nothing like the real thing, baby.
While most other documents can be scanned and discarded, you should hang on to the originals of the following:
The new-car sticker
- Insurance claims
- Recalls and
- Enhancing the vehicle's future sale or trade-in value
With a Monroney label, there's no question about the car's features -- they're all listed. You can show a potential buyer or your insurer exactly what came with the car, according to veteran auto writer Jim Mateja, from the type of engine to whether it has side-impact airbags.
The Monroney label also includes the car's serial number and where it was manufactured, which can help you track down whether any factory recalls affect your car, said Mateja, a Chicago Tribune auto reporter who writes for Cars.com's Kicking Tires blog. The sticker also can help establish the vehicle's value for insurance purposes, since all of its original features are listed.
Original documentation (along with repair receipts) helps establish you as a meticulous owner, one whose used car will fetch a higher price in a private sale. And if you were to hold onto the car long enough for it to become a collectible, the original Monroney in the glove box could help establish the vehicle's authenticity and add thousands to its value.
If you can show all the upgrades a car has, Mateja said, "you're justified in asking a higher price than someone who can't."
Your tax returns -- all of them
You can ditch all the supporting documentation after seven years, but the tax returns themselves should stay with you for life.The IRS and state income tax agencies typically are limited in how long they can audit your returns -- unless they decide you didn't file for a certain year.
IRS failure-to-file audits aren't that common, but tax expert Eva Rosenberg has had several clients scrutinized by state tax agencies insisting that returns from previous decades were missing.
"Some idiot state will come up and say you never filed for (a certain) year," said Rosenberg, an enrolled agent who runs TaxMama.com." At least keep the tax return and anything that proves you paid a tax bill or got a return for that year."
As with all other important documents, you'd be smart to scan copies of your tax return into your computer and make back-ups that are kept in a safe place.
"Scan them in PDF form but keep the originals," Rosenberg said. "You never know when the media will change." (Remember floppy disks?)
Another reason to hang onto tax returns: Social Security screw-ups.
Five years ago, Christina Miller of Seal Beach, Calif., noticed that her annual earnings from Social Security contained a mistake.
"For the year 1978, Social Security has incorrectly stated my income as $1,299," Miller wrote, "instead of $12,299."
Trying to get the record fixed, though, has become "a five-year nightmare." Social Security told her to write to the IRS, which told her it's up to Social Security to fix the error, adding that the IRS doesn't provide copies of tax returns that old. Miller, 56, even contacted her former employer, who "also does not keep records going back this far."
Social Security bases a worker's benefit on her 35 highest-earning years. Fortunately for Miller, 1978 wasn't one of those years. But she wonders how others fix serious errors that are more than a few years old without documents.
"What do (people) do who have had a house fire or other disaster and have lost their records?" Miller asked." I am surprised that there is no recourse."
Home-improvement receipts
If your home has gained more than $250,000 in value (or $500,000 for a couple), you'll want to look for ways to reduce your taxable profit when you sell. Receipts for home improvements can help you do that.
The cost of improvements can be added to your tax basis -- essentially, the price you originally paid for your home. That, in turn, can reduce your taxable profit.
(For those who need to know all the gory details: Under current tax code, your tax basis is subtracted from the home's selling price, minus commissions and other selling costs, to determine potentially taxable profit. The first $250,000 of profit per owner is exempt from taxes, but profit beyond that is typically subject to capital gains taxes. The top federal capital gains rate is currently 15%.)
Improvements, according to IRS Publication 523, "Selling Your Home," are defined as changes that "add to the value of your home, prolong its useful life, or adapt it to new uses." Some examples:
- Additions
- Interior remodeling
- Landscaping and fences
- Upgrades to home systems such as heating and air conditioning
- New roof, windows or doors
- Insulation
Improvements do not include maintenance or repairs, such as "repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes," unless those projects are part of an extensive renovation or remodeling job.
Also, you can't count any improvement you later rip out. If, for example, you install wall-to-wall carpeting and then remove it in favor of hardwood floors, you can't add the cost of the carpeting to your tax basis.
You'll want to keep receipts detailing the work that was done, or the cost of supplies if you did the work yourself. (A credit-card statement showing a Home Depot charge probably won't be sufficient proof, which is why you want to hang on to the receipts.)
And since you're likely to own your home for years, if not decades, it's smart to keep the original receipts as well as backups since storage technology can change over time (see above).
Final account statements
Collection agencies have found a new growth industry: people who have already paid their bills.
As I wrote in "Sleazy new debt-collector tactics," a host of collectors now specialize in buying up old (and often poorly documented) debts. Even when the collectors can't prove the debt is legitimate, some debtors will pay up rather than risk damage to their credit histories.
Fred was one of them. When a collector contacted him about owing $194 for a cell phone account he'd closed in 2001, he didn't recall owing the debt. But rather than risk his credit scores, he paid up.
Later he came across an old statement showing he had, indeed, paid the original bill in full. Unfortunately, paying the bogus bill didn't save his scores -- far from it. The collectors reported the account anyway, sending Fred's scores to the basement.
Any time you make a final payment on a bill or a debt, keep the paperwork showing you've paid what you owed. Some examples include when you:
- Switch cell-phone, land-line or long-distance providers
- Cancel a health-club membership
- Shut down utilities (such as when you move)
- Close a credit card account
- Pay off a loan
- Complete a debt-management or debt-settlement plan
Making sure you get that last statement showing a "zero" balance and a closed account can also help you avoid getting sent to collections for ridiculously small debts. One woman contacted me after she saw a collections account for 63 cents on her credit reports. It turns out that she'd transposed two figures in her last check to a credit card company (she paid $13.18 instead of the $13.81 she owed), and subsequent bills weren't forwarded to her new address.
Bankruptcy petition and discharge
Another lively category of collections efforts is debt that's already been erased in bankruptcy court.
The legal obligation to pay a debt ends when it's discharged in bankruptcy, and collectors are supposed to cease dunning you for the bill. But as noted above, many debts are sold and re-sold many times among collection agencies, and documentation for the bills is often lost in the process. Some of the collectors don't realize they're trying to collect on discharged debt, while others know but don't care.
The best defense against such collection efforts is often to send the collector a copy of your bankruptcy petition and discharge, showing the debt in question has been erased, said John Ventura, a collections law expert and co-author of the book "Managing Debt for Dummies." The copies should be sent certified mail, return receipt requested, to establish a paper trail.
"If they still try to collect, (you) should contact (your) bankruptcy attorney because this is a violation of the discharge order and the attorney can file an action in bankruptcy court to stop the collector," Ventura said. If you can provide proof you've notified the collector of the bankruptcy, he said, "the bankruptcy court . . . would most likely make (the collector) pay the consumer's attorney's fees and any damages."
Since collection efforts can persist for years or even decades after the debt was incurred, you'd be smart to hang on to these documents indefinitely.
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