What to keep, throw out after Tax Day


It's the day after Tax Day. We can now shred, file and forget about - what?

On "The Early Show," personal finance expert Carmen Wong Ulrich, author of "Real Cost of Living," shared tips on how to clean up and advice on what moves to make now, so you're ready for next year.

"You don't want to get rid of anything that you just filed," Ulrich said. "You need to keep everything for a minimum of three years. You keep the filing paperwork itself, you fill out for the IRS. Keep your income statements, your W-2s and 1099s. And also anything that supports the credits and deductions that you have taken. That's receipts, end-of-the-year statements on IRAs that you contributed to. Investment accounts and losses that you may have had. But also, if you bought or sold a home, and any medical or dental expenses that you actually used to file for a deduction."

But why three years?

"This is according to the IRS," she said. "They say you have to have it for three years just in case you get audited. They come back and talk to you. But especially if you have cash income. A lot of cash income. If you're a freelancer, you own a small business. I recommend you keeping that information for at least six years."

Ulrich said the best way to store your records is in a physical and virtual space.

"A lot of us have too much paper. It's everywhere," she said. "You can scan the important documents. I don't want you keeping them just on your hard drive on your computer. If anything happens, even if you have a backup file to your hard drive to your home, that information is gone. Store it on 'a cloud,' we love clouds, cloud computing. It's a great place to be. Because here's the thing -- nobody can get to that. It's basically a third-party server. Mozy.com or Google Docs where you save the information there. (Mozy is) a monthly service where you sign up and pay for back-up on another server. So if anything happens to your computer, your home, everything exists someplace else."

Ulrich says documents older than three years - and six years old if you own a business - are safe to shred.

Three-quarters of Americans do get a refund on their taxes. The average refund is $3,000.

But Ulrich said she'd like to see the number of Americans getting refunds to decrease.

"It's a lot of money," she said. "Here's the thing -- think of it this way, the average is $3,000. Wouldn't you rather have another $250 in your paycheck every month? That's a lot of money. That's money that could be working for you. So what you're doing is you're letting the IRS save money for you. It's not working for you. They're holding on to it. Have that money in your paycheck."

She added, "It's your money. It's not even found money. It's your money."

Co-anchor Chris Wragge remarked, "It's good when you get that return, but like you said, it could have been working for you all year."

So how do you change all that?

"What you have to do is you have to change the withholdings on your W-4," Ulrich explained. "The first step in doing that - it's a great time to do it. You have all of the information is in front of you. The paperwork, I hope. Go to IRS.gov and search for withholding calculator. It will spit out the number for you that you should have on your W-4. Go back to your employer, change the W-4. The point is not to owe but to get back a lot less of a refund."

Ulrich added you can also learn from your tax experience this year to get you ready for the coming year.

"You see what the process is like," she said. "How was it for you? Was it hectic, crazy? Here's the thing. Now you know what you need to save and file. Have those during the year for the receipts and you'll be all set next year."