What Financial Documents Should You Keep and How Long?

Clutter can be dangerous – especially when it involves your finances. When your financial documents are cluttering your desk or spread across your home, it can be easy to lose the ones you will need for tax season, it can be easy to toss them in the trash where dumpster-diving thieves can collect them and steal your financial identity, and it can be easy to simply be distracted by the mess and miss payments or opportunities to secure your money.

Keeping your financial documents organized and neat takes only a few short minutes each week once you know what to keep and what to toss. Stop right now…if you don’t already have a shredder, go out and buy one right now — I recently got mine at Staples. Then, we’ll work on which documents can be tossed and which you have to keep and for how long.

Let’s get started.

What to keep and how long?

Keep these forever

• Tax returns and proof of filing
• IRA and Roth IRA contribution records
• Statements proving remodeling jobs on your home or condominium
• Statements proving the purchase or sale of property

Keeping the documents recording purchase price and the cost of permanent improvements is important because those expenses are added to the original purchase price to establish the home’s cost basis. These expenses reduce your overall profit and help keep your capital gains tax in check when you sell your home.

Keep these for 6 years

Why six years? The IRS keeps three years’ worth of returns on hand for everyone. They use these to look for errors and verify any big changes. They have up to six years to challenge your return if they suspect under-reported income. There is, however, no limit on how many years they can ask you to go back if fraud is suspected or if you failed to file a return.

• Statements for securities you have sold
• W-2s
• 1099s
• Receipts proving deductions
• Medical bills deducted on your taxes

Keep these for 1 year

• Medical bills (unless they are deducted on your taxes, then keep them for 6)
• Retirement plan statements (until you verify the annual statement, then shred everything else)
• Monthly bank statements
• Utility bills
• Paycheck stubs (until you verify your annual W-2, then shred them)

… and as you put the latest one into the folder, take the oldest one out and shred it.

What about receipts for purchases?

Keep those until the warranty expires (if it has a warranty) or as long as you need them for tax purposes. For clothing or other returnable items, hang onto the receipt until the return period has expired so that if you change your mind, you have the receipt.

What can be shredded?

• Receipts of bank deposits and ATM transactions — once you have verified the transaction on your statement or account
• Canceled checks (except those relative to your income taxes)
• Bills — once they have been paid and the check is cashed
• Credit checks on employees — in accordance with the Fair and Accurate Credit Transactions Act
• Credit card offers and pre-approved home equity loan offers

Now, with a simple system established, you will be ahead of the game when it comes time for tax season. Each week, as you examine statements, you’ll know your current financial status and keeping track of that is invaluable.

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