Stephanie McCullough (00:06):

This is Take Back Retirement, the show that’s redefining retirement for women. Retirement is an old-fashioned cultural concept. We want to reclaim the word so you can make it your own. I’m Stephanie McCullough, financial planner and founder of Sofia Financial, where our mission is to reduce women’s money stress and empower them to make wise holistic decisions so they can get back to living their best lives.

Stephanie McCullough (00:29):

Kevin Gaines is my longtime colleague with deep knowledge in the technical stuff: investments, taxes, retirement plan rules. He’s a little bit nerdy and quantitative, I’m a little bit touchy-feely and qualitative. Together, through conversations and interviews, we aim to give you the information and motivation you need to move forward with confidence. We’re so glad you’re here.

Stephanie McCullough (00:54):

Today, we’re actually bringing you four separate guests who are going to share their experience and expertise on a common topic. One that might not make you jump up and down with excitement, but it is crucial, the importance of keeping financial records.

Stephanie McCullough (01:16):

Coming to you semi-live from the beautiful Westlakes office park in suburban Philadelphia. This is Stephanie McCullough and Kevin Gaines of Sofia Financial and American Financial Management Group. Say hello, Kevin.

Kevin Gaines (01:27):

Hello, Kevin.

Stephanie McCullough (01:28):

So, we’re going to try not to speak too much just ourselves on this show. What we want to do really is bring you the stories and advice of our expert guests. Kevin and I got to thinking about issues we see people have on a regular basis, and honestly, we ourselves have had it when it comes time to actually prove that something financial has happened. Whether it’s a tax-related issue or something with a retirement account, or as we’ll hear benefits from an employer.

Kevin Gaines (02:05):

Yeah. I mean, at the end of the day, in most situations, if you don’t have it in writing, it didn’t happen. So, and that’s a big issue. For a lot of us it’s like, “Oh yeah, I don’t have to worry about that. They’ll remember.” Or yeah, “No, we’re in total agreement,” or “Yeah, somebody else will have that.”

Kevin Gaines (02:26):

And I’m guilty of this, probably more than many, that it’s like, oh yeah, I don’t have to worry about that because it won’t be an issue or because I’ll be able to find it somewhere else when I need it. And that’s not often the case.

Stephanie McCullough (02:41):

Happily, we’ve got two stories from clients who had good outcomes with this record keeping. So, you’re going to hear from Steve and you’re going to hear from Doug. And these were very different issues they were dealing with, but both of them were able to come up with the proof they needed that really helped them out.

Kevin Gaines (02:59):

Let’s bring in Steve to tell his story.

Kevin Gaines (03:06):

Steve, you actually have an interesting story, partially to make some of our listeners jealous. You have a pension plan, which not many of us get to say anymore, but getting to this whole theme of documentation, this documentation got you a few extra bucks. Tell us please, how this came about.

Steve (03:27):

Well, the story started back when I first joined the company, the corporation back 30 years ago. And it was a large corporation. They had a great pension plan, great benefits. So, was there for 10 years, and they decided the division that I was a part of was no longer going to be part of the corporation.

Steve (03:53):

So, we separated and upon separation, after 10 years, I had to find employment elsewhere. And that was fun enough and challenging enough. However, a couple months later, I received a letter saying that I had pension. I was vested for the pension under that corporation for 10 years. And it gave me an amount if I waited till 65 to get it.

Steve (04:28):

So, five years later, I actually had somebody from the company, one of my former supervisors reach out and say, “Hey, why don’t we come back? We have a new department we want you to run.” So, I jumped at it because again, quality corporation, great people. And so, I had joined them back. They came back later on as I kept talking to them, to the HR about pension and benefits. The story I kept getting was we’ll give you the best of whatever is going to be better for you.

Steve (05:03):

And I said, that’s fantastic. May I get that in writing? As I’ve gotten later and later in my tenure of my second part of my career with this company, I kept reaching out more to HR saying, look, I really need to know what is going on and the new pension when I returned, when I came back for the second time, was about half of what the actual pension credits you earned on the original tenures that I was there. So, it was a pretty significant difference.

Stephanie McCullough (05:38):

Wow.

Kevin Gaines (05:38):

And that’s not surprising. I mean, a lot of companies are cutting back on their pension benefits, assuming they’re keeping them. So yeah, this is kind of par for the course.

Steve (05:46):

Yeah, there’s no pension for people that joined in the last three years. There’s no pension. They just add extra to their 401(k).

Steve (05:53):

So, as I spoke to the person in HR, on the pension line, of course, you can’t email them directly or talk directly, but I did find an ally and the gentleman that I had spoken to was very, very understanding of my concerns. And with that, he sent me the employee handbook from the year when I had left, and I had the employee handbook when the year I returned.

Steve (06:22):

And between the two, I was able to figure out, well, if you’re the parameters of maintaining the pension that I had without losing it or losing the value or how it was rated. So, about a year ago, I started going down this journey of thinking of retiring and continually kidding with HR to try to figure out what my pension would be.

Steve (06:51):

And they kept coming back saying, “It’s going to be X amount.” Well, X amount was based on the new guidelines. They did say, we’ll give you the total years, but they were coming back with the new amounts or percentages that they were based on.

Steve (07:07):

So, those credits were not equaling up to what I have for the first 10 years. So, I talked to them and appealed several times, even to the point where I’m saying, “Look, I’m going to go up to the executive level. If we don’t get this straightened out now.”

Steve (07:25):

And upon that appeal, “Oh no, here’s the total.” And it wasn’t correct in my figures. I called back to the HR one more time, and I spoke to a different person. I’m like, “Look, I’m not going to explain this all over again,” because it takes a while to explain that you’re going through 10 years, then separated then back.

Steve (07:47):

So, the person I spoke to said, look, try me again. Let’s see what I can do. And again, that person was very understanding of my concerns and actually said, “I agree with you. Let me take it to the next level and we’ll get this done for you.”

Steve (08:05):

Meanwhile, I had sent him a fax, or I emailed him a copy of my pension letter from the prior 10 years being vested this amount under this plan.

Steve (08:17):

So, about two weeks before I actually was retired, he came back and said, “I’ve got great news for you. We’re going to treat it as two separate pensions. We’re going to give you pension one from the original plan, and then pension two for the next 16 years from the new plan.”

Steve (08:39):

And that was all I asked. I wasn’t asking for anything more than what I earned and what I felt like I deserved for the time I was there.

Stephanie McCullough (08:51):

So, you had to, number one, be persistent and kind of keep arguing with them. And then number two, have that document that was how many years ago now? Like when you first left, after the 10 years, then you got that document.

Steve (09:08):

20 years ago.

Stephanie McCullough (09:09):

20 years ago. I mean, a lot of us don’t keep documents for 20 years, so, but that was crucial to making your case.

Steve (09:17):

It was, and the interesting thing is, I am the only one that I know of, of the group, and we had a hundred, about a hundred and some, maybe even more, maybe 200 and some people that were separated from the company when they had shut down the division that I was working on.

Steve (09:35):

And many did come back and I’m the only one that I know of that was able to appeal and get this granted. Again, I wasn’t asking for anything than what I earned what I deserved. I knew the new policy or the new pension when I came back, and I understand that. So, they stepped up. And it’s good.

Kevin Gaines (10:04):

Now, do you think you would’ve been as successful without the benefit letter that you received at termination?

Steve (10:10):

I don’t think so at all. No. I had zero document … or they had nothing to show the previous 10 years. There were several transitions that this company had gone through, through mergers and acquisitions.

Kevin Gaines (10:24):

Well, a lot of time people may dismiss keeping certain records because they’re saying, oh, well this is a good company, or I know the owner, they’re never going to screw me over. They’re always doing the right thing. Oh, I’m sure they were going to keep these letters. They got to have copies of these letters as well, in their records, et cetera. And you could have made the same argument, but you didn’t. And as a result, you get the bigger pension.

Steve (10:54):

I spoke with other people that had returned and were within some of the guidelines, the similar guidelines that I was in within the amount of years of separation. And they were like, “I just chucked the letter.” It was like, yeah, I saw how much it was, it’s 30 years from the time or 20 years from the time they’re thinking about retiring. So, it really didn’t matter to them.

Steve (11:18):

Well, now it matters. So, it is good to have and keep records whether physically or electronically to have that as your backup. What do they say? It’s always good to bring receipts when you’re challenging something. And that’s kind of what I had.

Kevin Gaines (11:37):

Yeah.

Stephanie McCullough (11:37):

Yeah. Thanks for sharing. So, the cool things about Steve’s story was that even though he had left the employer and come back, even though the pension plan had changed, he was able to prove that he was eligible for the old richer benefit.

Kevin Gaines (11:57):

Right. I mean, and that’s an important thing is employee benefits are always changing. And there can be a lot of grandfathering into these things. So, it’s easy for stuff to get lost in the shuffle.

Stephanie McCullough (12:08):

Yeah.

Kevin Gaines (12:09):

And on top of that, companies are getting bought and sold all the time.

Stephanie McCullough (12:12):

True.

Kevin Gaines (12:12):

So, even if you have your original company is this great small little company, they do everything great, and they have all these great records, as we discussed merger, after merger after merger, all of a sudden, it’s an entirely different organization.

Stephanie McCullough (12:29):

There’s turnover in the ranks of the HR folks. They have good intentions, they’re good people, and they don’t have the institutional memory or can’t put their hands on the records that are going to help you out.

Kevin Gaines (12:41):

Right. So, it gets back to even if they want to say, “Yes, we know you’re right, but we can’t prove it.” Hey, documentation proves it because it’s written. It did happen.

Kevin Gaines (12:55):

So, next up is Doug who had the situation of having to handle his mother who was suffering from dementia, and then her passing in all of the estate work that comes with that. Some of this kind of goes hand in hand, but not only do we hear about the importance of having the records, we also hear some of the downsides of maybe not having the records in the best format.

Stephanie McCullough (13:23):

So, here we go. Let’s hear from Doug.

Kevin Gaines (13:29):

So, Doug, tell us about having to figure out the cost spaces for your parents’ house, because I mean, it’s not just what they paid. When you have big capital improvements, you can add that into the cost basis, which reduces in theory, the amount of tax you may or may not have to pay.

Doug (13:49):

Right, yeah. It was a unique situation for us, given the health issues that my folks had over the last 15 to 20 years when it comes to finding records. Both parents were unfortunately affected by dementia Alzheimer’s. And thankfully my father spent time keeping records while he still had his wits bottom.

Doug (14:20):

And without that, it would’ve been incredibly difficult to arrive at any sort of cost basis for the work that they had done in the house and so forth. Because there was substantial work done in the house. So, without those records, it would’ve been impossible actually to come up with any figure.

Stephanie McCullough (14:45):

How long did they own the house?

Doug (14:46):

They owned the house for 30 years.

Stephanie McCullough (14:50):

Wow.

Doug (14:51):

And really did a major renovation on the house when they purchased it, they basically … You could stand in one end of the house and look clear across to the other end of the house. All the walls were taken off, the roof was taken off, the garage was converted into a family room and additions added. So, a lot of work was done, and it went across multiple builders.

Doug (15:16):

So, again, thank goodness for good record keeping, because it was not just one builder involved. There were two, and the construction took three plus years to complete.

Stephanie McCullough (15:30):

Wow.

Doug (15:31):

Yeah.

Kevin Gaines (15:33):

So, we’re talking major renovations that significantly added to the cost basis of the house, correct?

Doug (15:39):

Yeah, absolutely. Absolutely. The house other than the property, the land and so forth, the property was completely redeveloped, if you will.

Stephanie McCullough (15:53):

And so, was it just a matter of opening up a drawer and the records were sitting right there for you, all neat and tidy?

Doug (16:01):

Well, I wish I could tell you that was the case. My sister and I spent just a few weeks looking for where these records may have existed. And we did find them in a crawl space in the attic next to the widow’s walk access. And luckily the records were intact. There was no water damage, there was no damage to the records, although they were fairly old.

Doug (16:32):

And so, some of them were hard to read, but they were legible enough for us to make some determination. Yeah, for sure. But he hid them in a very secretive spot. And they were safe.

Stephanie McCullough (16:47):

No critters had nested in there.

Doug (16:51):

No, no. Thankfully, they were safe all in their cardboard boxes, believe it or not. So, they weren’t protected the way you would protect them in these days. That’s for sure.

Kevin Gaines (17:01):

So, that’s a really key point you just made. It’s all well and good to have the records. It’s all well and good to have them protected or semi-protected from elements and little furry critters. But if nobody knows where they are or how to find them, they really don’t do anybody any good. Right?

Doug (17:24):

Well, that’s correct. Yeah, yeah. I mean, it was, as a result of selling the property and kind of going through everything in the house was how we ended up finding the records, because we were in every crawl space, every area.

Doug (17:40):

And certainly, what I would say is, it was certainly a lesson to me, the importance of keeping the records. I wouldn’t want my daughter to have to go through this.

Doug (17:52):

And the nice thing is that now there are a lot more options by which you can store this information. I mean, not in a cardboard box with files and elastic bands. There’s a lot of more convenient ways and more legible ways to store this information, so that it’s easier for the next generation to utilize as they need.

Stephanie McCullough (18:18):

Can you give us an idea of the order of magnitude? If you had never found the records, the tax bill, versus having found the records?

Doug (18:30):

A lot. A lot, it made a significant difference in the taxes over the road for the estate, a phenomenal amount. Without them, it would’ve been a shame for the estate. For everything that both my parents worked for to build the estate to pass on, it would’ve been difficult to have to take that kind of hit given the hard work that certainly my dad put in and my mom as well, to build the estate for sure.

Kevin Gaines (19:01):

In the case of your parents, we’re talking about Massachusetts, so we’re not talking just federal taxes, we also had significant state taxes that you were able to correctly pay as opposed to overpay because you couldn’t find the stuff.

Doug (19:19):

Absolutely. Yeah. Massachusetts will find a way to tax you. And without those records, it would’ve been very difficult, especially with — well both. But it wasn’t a one-time deal. It was federal and state. Yep, absolutely.

Kevin Gaines (19:46):

So, at the end of the day, the biggest parts of this story are make sure you can find your records and other people, maybe even more importantly, other people can find those records. Because Doug didn’t put them in the attic, dad did.

Stephanie McCullough (19:59):

Yep.

Kevin Gaines (20:00):

And make sure you can read them because again, and we’re going to hear this later in the episode as well, that paper is great. It’s convenient, you already got it. Paper fades, paper gets wet, paper’s not always able to be read, and you might not be able to figure out where you got it from.

Stephanie McCullough (20:17):

Paper gets eaten by mice.

Kevin Gaines (20:19):

Mice, fill in the blank. There are issues with paper, plus stuff gets bulky. But anyway, later in the episode we’ll be touching on that.

Stephanie McCullough (20:28):

So, as Kevin and I were structuring this thought about having a podcast episode on this topic, we thought, you know what? We should bring in some experts who really have seen not just their own personal stories, but client stories as well as what the authorities so to speak are looking for. So, our next conversation is with Marianne Borneman, who is a tax expert and enrolled agent. She’s got stories of her own to share.

Stephanie McCullough (20:55):

So, just one explanation in case it would be helpful. We’re going to mention the words cost basis. And this is what was applicable in Doug’s story too about the house. The cost basis is the price you paid for something. And in the case of the house, any improvements you made along the way so that when you sell it, hopefully for more down the road, you only actually are taxed on the gain between the cost basis, your price plus improvements and the price you sold the at.

Stephanie McCullough (21:23):

You’re not going to pay tax on a million-dollar house if you actually cost basis was 500,000 just to use round numbers. That’s what cost basis means. We’re going to mention that in our interview with Marianne, which starts now.

Kevin Gaines (21:40):

So, Marianne, simple question. Where has record-keeping gotten your clients in trouble before? I know trying to sell a house can be a big issue.

Marianne Borneman (21:52):

Yeah. So, one of the things that has recently come up with a client is around a home. If you’re familiar with your primary residence, when you sell your primary residence, there is an exemption from capital gains tax within certain limitations. And as you generate your basis in your property, one of the pieces of that basis is not only how much did you purchase it for, but how much did you spend on certain types of improvements.

Marianne Borneman (22:25):

And if you can’t document those improvements, then you can try to claim them. But if the IRS questions it, those expenses will be disallowed. And now you’ve got a tax bill and the IRS once they start asking questions and find out that you reported things that you don’t have proof of, they’re going to keep asking some more questions.

Kevin Gaines (22:52):

So, you’re saying that once the IRS finds a little chink in your return, they’re just going to bore down into it and find anything and everything else they can?

Marianne Borneman (23:01):

Well, yeah. Once they see something that isn’t matching up with your documentation, they’re going to keep asking questions. They don’t have the budget or the manpower to do the old-school audits that we hear about the horror stories where an IRS agent shows up at your door and wants to comb through all of your information.

Marianne Borneman (23:25):

So, they’re going to use what they can do through automated systems and computer algorithms. And if they start finding things that don’t match up, they’re going to ask for that documentation. And if you don’t have it, they’re going to keep asking questions. Because their thought is going to be, if you can’t document this, then what else can’t you document? What else do you not have proof of that all we have to do is ask a few simple questions and now we’re generating additional tax revenue for virtually no manpower. Because most of it gets done by a computer.

Stephanie McCullough (23:59):

So, I can’t say, “Oh, I’m pretty sure I spent $8,000 on that new air conditioning system five years ago.” Or you’re saying it’s not wise right to go that route?

Marianne Borneman (24:10):

It’s not wise. I mean, you can say anything you want. It may raise the level of tax fraud, but you can say anything you want. The question becomes can you justify it, if the IRS were to question it, do you have the proof that it was a legitimate expense that it actually happened? Because in the world of the IRS, if it’s not documented, it’s not real.

Stephanie McCullough (24:38):

So, what kind of things constitute proof, in this case?

Marianne Borneman (24:43):

Receipts. IRS loves receipts and they don’t have to be paper. You can scan stuff and keep it electronically, in this day and age. For the most part, I tell people your paper receipts have some sort of software to scan things in. Whether that be you literally throw it in a scanner and put it in a folder on your computer. Or if you use an app to store your documents because you think about it, when was the last time you went to the grocery store? You got your receipt, you throw it in your little pocket on your car door, it’s exposed to a little bit of weather a week later you can’t even read the thing.

Stephanie McCullough (25:18):

This is true.

Marianne Borneman (25:18):

So, receipts, the printing disappears really fast. So, it’s much better to scan it and save it that way because the last thing you want is some key piece of documentation that you need to show a deduction and you go to pull the receipt and all the ink is rubbed off.

Kevin Gaines (25:40):

So, and since we’re talking about a house, we’re talking about something that you may own 20, 30, 40 years. That’s a lot of opportunity for the ink to fade or mice to get hungry or water just to disintegrate. Stuff disappears.

Marianne Borneman (25:59):

Yeah. So, definitely a lot of value in having some sort of system for scanning and storing the information electronically. Because who wants to have all those boxes of documents and there’s way too many ways that kind of stuff can get damaged. And then you’ve lost your proof.

Marianne Borneman (26:21):

Had a small business owner a few years ago had a warehouse fire and all of his business records were in that warehouse, and he received a letter audit and could not provide documentation. It took a lot of work with the IRS to come to some sort of agreement for him because obviously he was running a business. He did legitimately have expenses, but all of his proof went up in flames.

Stephanie McCullough (26:49):

That’s terrifying.

Kevin Gaines (26:49):

So, what is a letter audit?

Marianne Borneman (26:56):

So, a letter audit is what is generated by the IRS’s computers. They’re really going that way a lot more because they just don’t have the manpower to do in-person reviews. So, like everything else in this world, there’s computer algorithms. So, when you file your tax return, it goes into a computerized system and the computerized system can either randomly just select your return to say, prove that this item that you reported online, whatever, or it could be that something red flags it.

Marianne Borneman (27:32):

Most common is people who have side gigs, who get 1099s. And if what you report as your independent contractor income does not match the 1099s that the IRS received, their computer’s just going to flag that. And it’s going to say something doesn’t match. And you’re going to get this letter that says our records show that you received X. Give us your proof of why you reported what you did.

Stephanie McCullough (28:01):

What about a canceled check? If I wrote a big check to my contractor and then, I can get the canceled check record from the bank, right?

Marianne Borneman (28:14):

Yep. Yeah. So, that’s going to prove that you paid that person, that doesn’t necessarily prove what they did. And so, that’s why the receipts are important. So, you really want to show what was done, what did you pay for, and that you paid for it.

Stephanie McCullough (28:32):

Got it. So, their detailed invoice from the contractor saying what they did.

Marianne Borneman (28:35):

Right, right. Yep.

Stephanie McCullough (28:40):

Got it. Excellent. So, one of our favorite topics of course is retirement accounts. And as we all know with retirement accounts, you get a certain tax break, but there’s always a quid pro quo with a tax break in that there’s rules around it. So, what have you seen around retirement accounts where it’s important for people to keep track of their own records?

Marianne Borneman (29:00):

Yeah, so a lot of times the custodian will keep certain records but maybe you change custodians, or something moves. So, cost basis gets lost. That’s a big one. The other things are things like your required minimum distributions, Roth conversions, those things, there’s not a good system in place at the IRS for those type of things. And depending on, we see 1099s come out from various custodians where someone has done a Roth conversion, but the original custodian doesn’t necessarily know what happened.

Marianne Borneman (29:48):

So, that 1099 is issued just as if that person took a standard withdrawal from their retirement account. So, it’s really the responsibility of the individual to keep those records about what they did, to make sure that things are accurately reported. Or even a rollover, maybe you’ve rolled over a retirement account from a 401(k) into an IRA or from one IRA to … one custodian to another, depending on what kind of records the original custodian has, they’re going to issue out a 1099 based purely on the information they have.

Marianne Borneman (30:20):

They don’t necessarily always know where you are taking that money to. And so, if you are making a qualified rollover going from one qualified plan to another, you want to make sure you have those records. Because if the original custodian doesn’t have that information, or maybe it’s just their policy that they issue everything out as an early withdrawal, if they didn’t do a direct transfer to the new custodian, it’s the individual’s responsibility to keep that information. Because if the IRS comes back and asks, you don’t want to be liable to be paying taxes on a withdrawal that you didn’t actually make.

Stephanie McCullough (31:02):

And just to be clear, a custodian is like your Fidelity, your Vanguard. The financial company where the money is sitting and it’s not, for example, Vanguard’s fault. If the client wants to go yell at the financial company, it’s really the individual taxpayer’s responsibility.

Marianne Borneman (31:21):

Exactly, exactly. Yeah. And we run into that fairly frequently with people who have Roth accounts, particularly just as far as whether or not they’re taking qualified distributions from their Roth. A lot of custodians will not track, was this an original contribution? Was it made more than five years ago? Obviously, they track the age, but beyond that they’re not tracking for you whether or not you are now eligible to take that money out of your Roth without penalty. That’s your job.

Stephanie McCullough (31:57):

So, if you make a contribution to an IRA, you get that 5498 form, which doesn’t come in time for tax time. So, it confuses people. But is this where those come in handy?

Marianne Borneman (32:09):

Absolutely. Yeah. That’s where you’re gathering that information from. And really those are for your records. Again, you can provide the information to the IRS if you want, but there’s no requirement to report that back. So, it really is for you keeping your own records.

Kevin Gaines (32:29):

So, Marianne, appreciate you being here. Fantastic.

Stephanie McCullough (32:33):

Awesome. Well, thank you so much for being with us today.

Marianne Borneman (32:33):

Absolutely. Happy to be here. Great to talk with you guys.

Kevin Gaines (32:40):

Appreciate it. Love your stories. So, at the end of the day, the IRS and other government agencies are just that, government agencies, they’re not necessarily out to get you, but they are going to do everything by the book. There are check boxes that they’re going to be looking to go down the list on. So, you need to be able to work in that environment, which means you need to have your records, you need to have them for a certain period of time. You need to be able to document everything. Getting back to the theme of this thing is if it’s not written down, it didn’t happen. They may even agree with you that yeah, that that’s probably what happened. But if it can’t be proven at the end of the day, they can’t accept it.

Stephanie McCullough (33:27):

Yep. So, we wanted to bring one more expert in, my friend Sonya Pappas, who’s a CPA. She’s going to share with us some of the best practices on what to keep, how long to keep, but also how to keep, and she’s going to share her three-step framework, which I find really helpful for thinking about how to deal with your records and documents. Here we go with Sonya. Sonya, we’re so glad you’re here with us today. Set us straight. Give us the best practices on these records and documents. What should we be keeping and for how long? Because there can be a lot of them.

Sonya Pappas (34:06):

Alright, Stephanie, thanks for having me. Here’s a few things I want people to think about in the digital age. Traditionally we tell people for tax returns, it’s three years from the date you filed your original return, or two years from the date you paid your tax, whichever is later. But an old-fashioned rule that probably your parents or other people remember is the seven-year rule.

Stephanie McCullough (34:30):

Yeah.

Sonya Pappas (34:30):

Keep everything for seven years. Feel good about the seven. And what do we mean by keep everything, whatever you shared with your tax preparer. So, the W-2, the mortgage interest statement, the investment brokerage account, the retirement fund, the social security, all of those original documentations that you either uploaded or mailed in or shared with someone in preparing your tax returns, you want to keep.

Sonya Pappas (35:00):

Any correspondence back and forth from the tax preparing you that might have answered questions, you want to keep. Any of your donation records, any of the original receipts of them, any of your mileage, if it was used for business or charity. All of these items you want to keep very similar to the way you presented them to your tax preparer, or you organized them yourself. Okay. Those rules are kind of hard standing.

Stephanie McCullough (35:30):

So, seven years.

Sonya Pappas (35:32):

Seven years. It’s so interesting. One of the best websites is the IRS website. I know people would laugh and giggle, but some of these little sidebar issues they do a great job of, and they have them updated regularly. We as accountants would tell people, keep your records for seven years, particularly if you claimed a loss in a security, a bad debt, or you have a business attached to it. In folding with that, oftentimes when one has to prove something to a taxing authority, believe it or not, you need proof of payment. So, people get hung up on the receipt. Oftentimes what someone’s looking for is really a proof of payment. And this can be a bit frustrating.

Sonya Pappas (36:17):

So, say for example, the state of Pennsylvania sends you a notice and you say, “Oh my goodness, I owe this. I don’t owe this. I’m sure I paid this bill.” The only way to prove it is to find the canceled check or inside kind of the digital age, you’re going to need proof of that in your bank statement. So, for people who like to save, we often also tell them, keep copies of your banking records.

Kevin Gaines (36:43):

Sonya, let me ask this question. Do we really need to save these things? Can’t we just, if the IRS comes knocking, not that they’re coming knocking anymore as they’ve announced they’re doing everything remotely, but-

Sonya Pappas (36:56):

They’re not.

Kevin Gaines (36:56):

But couldn’t I just call up my credit card company or my broker and say, “Hey, I need this.”

Sonya Pappas (37:10):

Well, that’s a great question because oftentimes your broker or your credit card company can go back and do that. But say for example, your bank, what if you paid your donation on a bank? And that’s what they’re looking for. Unfortunately, if you look on the digital banking errors, people are charging you to go back and find those.

Sonya Pappas (37:28):

I have a wonderful client who owned a lovely business, and he needed proof of payment. And his bank was sold from a local community bank to a larger bank, and they charged him about $1,500 to go back and get two years’ worth of bank statements so he could find that proof of payment. So, what we suggest to business owners and just to people is if you can digitally save those bank statements, save them, save them.

Sonya Pappas (37:55):

I like to tell our clients the world’s a new place now. So, there’s a three-step process. I want people to locate their documents that are important. Then you’ve got to decide, am I a paper person or am I a digital person? Because I’m guessing in this world, we have some of both. I personally would recommend that people are digital. It’s easier, it works better. But if you’re paper, I suggest you’re paper and digital, and I suggest the number two thing is you’re going to have to secure that.

Sonya Pappas (38:32):

So, if it’s paper, you need a fireproof safe in your home. If it’s digital, you need to know where you’ve uploaded and that you’re safe and secure. And then the third piece of this, which I call the most important piece, is sharing this important data with other people. So that if there was something that happened to you or your partner or your family, some other third-party understands how to access all these things.

Sonya Pappas (39:00):

And these are never comfortable, fun conversations, but they’re the 1, 2, 3. Locate your documents, choose how you’re going to secure them safely, given what the choices are. And thirdly, share how you are saving them with a third-party so someone else knows how to access all of this.

Stephanie McCullough (39:17):

So, one of the client stories we shared earlier in this episode was siblings who sold mom and dad’s house, mom and dad had passed. And they found in the attic in a box that miraculously hadn’t been eaten by mice or damaged by water, the records of all the renovations they’d done in the house, which substantially changed the cost basis. And thus, the taxes when they sold the house. So, it’s not just you that needs to find this stuff, right?

Sonya Pappas (39:44):

Right. And I think it’s really important for people to understand that we have to all in a matter for 20, 40 or 60, just be responsible with the things we have. And part of it in this day and age is those three steps. Finding your documents, figuring out how you’re going to secure them, and then sharing a way that people can access it. I think those things are so important and they make us feel uncomfortable, number two and three, oftentimes people tell me, I have the records, they’re just not organized, or I didn’t digitize them, but I need you to do that. Secure them, and then tell someone where this is. It’s fascinating that they found them. It’s fantastic.

Stephanie McCullough (40:22):

Yeah.

Sonya Pappas (40:22):

But wouldn’t it have been great if someone just left a trail, here’s where my documents are.

Stephanie McCullough (40:26):

Yeah, for sure.

Sonya Pappas (40:28):

So, it’s interesting because in our field, and probably similar to you, we provide our clients with a portal. And we actually take their documentation and give them a permanent file. And then we do show them, here’s your app on the phone. So, now this is all accessible to you. So, I think in 2023, there’s great options out there for people to use, as we all say, some sort of secure cloud software that’s going to hold our data. The only thing I’d remind people is to share access to that with someone in the event that another person needs it, or you are incapacitated or ill, that someone can do and use things that they need to with you.

Stephanie McCullough (41:09):

A lot of people think about, well, what if I pass away? But to your point, Sonya, if I am incapacitated or ill and someone has to act on my behalf, that’s the potentially more complicated scenario.

Sonya Pappas (41:20):

And it’s also a very real scenario. And I think these are the conversations that people have with investment advisors and with their accountants and with their lawyers, and they’re a little uncomfortable. And I always warn my clients and I say, we’re going to talk about things that make you feel uncomfortable, but they’re critically important. And once it becomes more a part of the conversation, it’s easier to then locate the documents, figure out how you’re going to secure them and share it with someone, the system becomes a little more usable. So, I think it’s a new way of living and a new way of doing business. And I think the quicker we help our clients and our friends, and our families become a part of it, the easier it’ll be for everyone.

Sonya Pappas (42:06):

We used to have paper files. If you’ve ever been in Rotary, I remember being handed the treasurer’s box and it was this giant box of paper and I came back to my office and I plunked it on the intern’s desk and was like, digitize and shred. We’re not passing this on, like this craziness. It was 30 years of paper. And so, we have this nice digital thing that we shared with other people and then everyone could access. So, I think it’s just part of the way we all live now. And I think that we can help people. Your podcast can help people make the move.

Stephanie McCullough (42:44):

I appreciate that.

Sonya Pappas (42:44):

It’s not as hard as you think.

Stephanie McCullough (42:47):

Yeah.

Sonya Pappas (42:47):

I think it’s a great service. It doesn’t have to be a big, dark conversation.

Stephanie McCullough (42:51):

Yeah. Whatever’s going to work to make it actually happen.

Kevin Gaines (42:55):

Right.

Sonya Pappas (42:55):

And to be honest, and to your point Kevin, for people who are putting things in a cloud storage system, they can easily give whoever they would be looking at as their trusted people in the event of an emergency, they can give them access ahead of time. And just a reminder, you do have access to this portal. You can see these things. So, I think that’s another way to go about it from the beginning.

Kevin Gaines (43:24):

Yeah. Good answer.

Stephanie McCullough (43:24):

Yeah. No, I love that. And having the conversations with your loved ones before it’s a crisis.

Sonya Pappas (43:30):

And keeping them, in the words of Kevin, keeping them lighthearted, this doesn’t have to be the serious end-of-the-world conversation. This is practical. What if you had a fire in your home or your office? I think of Hawaii, and I think, “Oh dear God, what if we were Hawaii?” I’d be able to access things from my phone. We recently had a house fire in our own home.

Kevin Gaines (43:55):

Oh geez.

Sonya Pappas (43:55):

And we had painters painting, and both my husband and I came home for lunch, and they were using a blowtorch, and I should have known they had a hose. And I was like, oh, that’s weird. They need water. And then, a few minutes later, they knocked on our back door and said, you have to evacuate your home. We called the fire department. We think your portico has caught on fire. So, we handed them a fire extinguisher and I grabbed my phone, my charger, and my dog, because everything I own is digital. And I did think through that for a minute. Like, what am I grabbing? And I left my laptop because I was like, no, we’re in a network. I’m good. I do want to say though, I did grab my dog.

Stephanie McCullough (44:42):

Good, good, good.

Sonya Pappas (44:42):

It was a very important scoop.

Kevin Gaines (44:44):

Well, my question is, what did you grab first? The dog or the phone?

Stephanie McCullough (44:48):

No, nobody has to know.

Sonya Pappas (44:50):

The phone. Undoubtedly the phone and the AirPods. The AirPods. With my keys. With my keys, so-

Stephanie McCullough (44:59):

Oh my gosh.

Sonya Pappas (45:00):

So, it was a minuscule moment. But I did have that thought process of, but everything that’s really important is secure.

Stephanie McCullough (45:10):

That is a goal.

Sonya Pappas (45:10):

So, let’s think about that as a group.

Stephanie McCullough (45:15):

Yeah.

Sonya Pappas (45:15):

That is a really good end of 2023 goal for your listeners, to really go through the process.

Stephanie McCullough (45:25):

Awesome. Thank you, Sonya, for your wisdom today.

Sonya Pappas (45:29):

No, thank you, you guys are a fun duo. I really like it. We’ll have to get together and have lunch where we bring sarcasm in a more in person way.

Kevin Gaines (45:45):

So really, what have we learned today? Obviously record keeping is important, and Sonya really spoke to this, which is make it part of your lifestyle or your process DNA or whatever phrase you want to use.

Stephanie McCullough (46:02):

Habits, routine.

Kevin Gaines (46:05):

Yeah, exactly. Because I mean, if you do this on a regular basis, if you think about how this all kind of fits together, it’s a lot easier than saying, “Oh geez, just I got to get this all organized and put together.” If you can develop a system for just automatically saving these forms, or even routinely purging these forms…don’t let this stuff become overwhelming because the danger is, you see it, you get overwhelmed, you stop doing it.

Stephanie McCullough (46:36):

And it really hearkens back to our previous episode, which was episode 75 with Angie Hyche about organizing and decluttering your documents. These two go hand in hand. And the book that Angie recommended, we’ll link to in the show notes, because I can’t come up with a title off the top of my head. But I really like Sonya’s three-step system. Find where your records are, figure out how you’re going to secure them, whether in paper or digital form. And she really encourages doing the digital even as the backup to your paper.

Stephanie McCullough (47:10):

And then talk to your people to make sure they know where your records are. And the corollary of course, is make sure you know where your people’s records are. Do your parents have important documents? Where are they? How can you find them, should you need them? Your loved ones. Anyone else, where you might have to step in and help either during a crisis or after their passing.

Kevin Gaines (47:28):

Stephanie, you just referenced going back to episode 75.

Stephanie McCullough (47:33):

Yes.

Kevin Gaines (47:33):

When we started this, did you ever think you would say, episode 75?

Stephanie McCullough (47:38):

Heck yes. Everybody thought we were going to quit and give up after a few episodes, so I know we were sticking with it. Did you?

Kevin Gaines (47:47):

Never a doubt. I’m busy trying to figure out some sort of joke to make for episode 100.

Stephanie McCullough (47:52):

Woo-hoo.

Kevin Gaines (47:52):

Become Centurions.

Stephanie McCullough (47:57):

I like it. I like it. Well, listeners, we’d love to hear where are you feeling most stuck around the record keeping and the, the paper and the digital stuff. What’s your next action item you’re going to take? Has this helped giving you the oomph that you need to get going with it? Please share with us. We’d love to hear from you. Thanks so much for being with us. We’ll talk to you next time. It’s goodbye from me.

Kevin Gaines (48:21):

And it’s goodbye from her.

Stephanie McCullough (48:28):

Be sure to subscribe to the show and please share it with your friends. Show notes and more information available at takebackretirement.com. Huge thanks for the original music by the one and only Raymond Loewy through New Math in New York. See you next time.

Voiceover (48:42):

Investment advice offered through Private Advisor Group, LLC, a registered Investment Advisor. Private Advisor Group, American Financial Management Group, and Sofia Financial are separate entities. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.