Mar 05, 2024 Personal Finances,
Determining whether to keep or shred financial documents can be confusing – use our simple guide to get started.
Every year, it’s nice to do a bit of “financial spring cleaning” and declutter your filing cabinet, desk drawers, and the various hiding places where miscellaneous scraps of paper tend to accumulate and multiply. Here’s what you need to know:
Keep Or Toss
Keep Forever
If you’re long overdue for some organization in the paperwork department, start here! This category includes all the super important life stuff that’s usually issued to you only once and therefore difficult to replace:
- Birth and death certificates
- Social Security cards and ID cards (even expired versions)
- Passports (even expired versions)
- Marriage licenses and divorce decrees
- Adoption papers
- Copies of wills, trusts, and powers of attorney
- Adoption papers
- Records of paid mortgages
- Safe-deposit box inventory
- Military records
- Retirement and pension plans
Your “keep forever” documents should be kept in a secure place. A locking file cabinet in your home is a popular choice but consider upgrading to a safer alternative – such as a fireproof safe in your home or a safe-deposit box at your credit union or bank. Also, consider scanning these documents and having them backed up on the cloud – password protected, of course – so you can access them remotely and quickly in an emergency.
Keep For Seven Years
- Income tax returns
- Any forms that support income or a deduction on your tax return (e.g., receipts, canceled checks, W-2 forms)
- Records of selling a house or stock (documentation for capital gains tax)
- Records of paid-out loans
- Records of sold investments
- Mortgage documents
- Medical records (including prescriptions and health insurance information)
This category includes all supporting documents for your income tax return, plus a couple of other miscellaneous ones. This may seem like a long period of time, but it’s not an arbitrary number – seven years is how far back the IRS can go to audit a tax return. The breakdown is a little more complex; you can be audited for any reason up to three years after you file a tax return and up to six years after you file a tax return if you omitted 25% or more of your gross income – which technically makes the auditing window three to seven years.
An audit is an evaluation of your tax return to verify its accuracy and to ensure compliance with tax laws. Many people associate being audited with having committed tax fraud or some other dishonest financial behavior, but, in fact, some taxpayers are audited on a random basis each year.
If audited, you’re required by law to provide the documentation that supports the claims made in your tax return. In some cases, additional information may be required to verify a claim you’ve made – it might just be a matter of providing a canceled check, a receipt, or a bank statement. In other instances, the audit may take place on-site, meaning at your residence or workplace, or at an IRS office. Being well-organized is the best way to make the process as quick and painless as possible.
Keep For One Year
- Bank and credit card statements
- Pay stubs
- Quarterly investment statements
- Receipts for large purchases
- Canceled checks
- Paid medical bills
This category mostly consists of monthly statements. A good rule of thumb is to keep your monthly statements for the current year, and then shred them once you’ve reconciled them with an annual statement. The exception is any statement needed for tax purposes – those get grouped into the “keep for seven years” category.
Keep For 30 Days Or Less
- ATM slips
- Utility and phone bills
ATM slips can be tossed once you’ve checked them against your monthly bank statement. Utility bills and phone bills can be shredded after you’ve paid them unless they contain tax-deductible expenses.
Keep While You Own
This bonus category is a catch-all for agreements and contracts that are active for varied amounts of time:
- Warranty information
- Insurance documents
- Vehicle titles and loan documents
- House and mortgage documents
- Pension records/retirement plans
You’ll want to hang on to the records in this category for at least as long as you own the asset. For major purchases, stapling the original purchase receipt to the user manual or warranty information will keep everything in the same spot, should you need to make a warranty claim. Documents relating to improvements and upgrades on your home or vehicle should also be saved alongside your title and loan papers.
Summary
Sorting through financial documents is a straightforward process once you figure out how long you need to keep specific types of documents. Doing a periodic cleanup will help keep your documents organized and decluttered in the event you need to access them.
FAQs
Keep For One Year
How long should you keep financial documents? ›
Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
How long should I keep utility bills? ›
Utility Bills: Hold on to them for a maximum of one year. Tax Returns and Tax Receipts: Just like tax-related credit card statements, keep these on file for at least three years. House and Car Insurance Policies: Shred the old ones when you receive new policies.
How long should you keep line of credit statements? ›
In this case, it's wise to keep credit card statements for at least three years, preferably six if there is a high risk of audit. Credit card statements are vital to prove any business expenses, large purchases or payments (of several thousands of dollars) or tax deductions like charitable donations.
How long should a person hold on to their bank statements? ›
KEEP 3 TO 7 YEARS
Knowing that, a good rule of thumb is to save any document that verifies information on your tax return—including Forms W-2 and 1099, bank and brokerage statements, tuition payments and charitable donation receipts—for three to seven years.
Is there any reason to keep old bank statements? ›
Bank statements are necessary for loan applications and IRS audits. Store hard copies in a locked filing cabinet or digital copies in an encrypted folder. Banks are required to keep statements for five years, but you may want to keep yours for seven years.
What financial records should be kept for 7 years? ›
Your best bet is to hang on to your tax returns as long as possible. If you ever face a tax audit, then you'll have all the information you need. You also should consider saving documents that verify the information on your returns for at least seven years, like W-2 and 1099 forms, receipts and payments.
Should I keep old utility bills? ›
To hold for a year or less (with some buts):
Monthly utility/cable/phone bills: Once you know the bill is correct, toss it. But if you deduct some of these costs on your tax return, you'll want to save them with your return (more on that in a moment).
What paperwork should I keep and for how long? ›
To be on the safe side, McBride says to keep all tax records for at least seven years. Keep forever. Records such as birth and death certificates, marriage licenses, divorce decrees, Social Security cards, and military discharge papers should be kept indefinitely.
Do I need to keep bank statements for 7 years? ›
7+ years. Although this depends on your filing circ*mstances, the IRS may ask you for supporting documentation for three to seven years after you file a return. Therefore, it's a good idea to save any document that verifies the information on your tax return for seven years or more.
Here are several often-overlooked documents that should be securely destroyed. We all know it's important to shred our most sensitive pieces of information—credit card statements or applications, tax-related documents, identity cards, etc.
How long should you keep old credit card receipts? ›
If you have other documentation that shows records of your financial activity, then keeping receipts isn't absolutely mandatory, but it's certainly best practice and could be very helpful should the IRS come knocking. The IRS recommends that you hold onto receipts for at least three years.
Do I need to keep receipts if I have credit card statements? ›
A credit card statement can only serve as a record of payment, but a receipt may be needed to provide the details of such purchase. If you have no receipts, you cannot prove that you bought something tax-deductible.
How long should you keep bank statements and check registers? ›
With tax considerations in mind, here are suggestions that may make sense for many people. Credit card and bank account statements: Save those with no tax return usefulness for about a year, but those with tax significance should be saved for seven years.
Can I get 20 year old bank statements? ›
Old records may be destroyed after 20-30 years per bank policy. However, banks are not required to purge very old records and may still have the ability to retrieve them. Accessing archived records involves manually retrieving them from storage. This takes time and banks will charge fees to cover costs.
How far back does a trustee look at bank statements? ›
Trustees can look back at any transaction made within 90 days of a bankruptcy filing to see if it applies. Trustees can also look back at certain property transactions and payments to family or friends, a year before the filing.
Can the IRS go back more than 10 years? ›
In some cases, the IRS can take more than 10 years to collect tax debts. This happens when an event causes the clock to stop ticking on the statute of limitations and the deadline gets extended. This is called tolling the statute of limitations.
Do I need to keep old 401k statements? ›
In general, 401(k) plan records must be kept for a period of not less than six years after the filing date of the IRS Form 5500 created from those records. However, records necessary to a participant's claim for plan benefits must be kept longer.
How long should you keep monthly statements and bills? ›
Keep for a year or less – unless you are deducting an expense on your tax return: Monthly utility/cable/phone bills: Discard these once you know everything is correct. Credit card statements: Just like your monthly bills, you can discard these once you know everything is correct.
