As we start off on a brand new year, it’s a great time to do some financial housekeeping. You’ll be pulling your documents together for tax preparation soon. Some of these organizing steps will help with your tax return preparation.
What should I keep and what should I throw away? Generally you’ll divide up your documents into different categories – short term, a year or more, 3-7 years, ‘it depends’ and forever.
And keep in mind – when you want to discard old financial documents, you need to do so securely. You can purchase a shredder inexpensively at an office supply store. You may also see shredding events sponsored by financial institutions in your community. If you decide to participate in one of these events, hang out to see your documents actually go into the shredder.
If you still receive your monthly statements and bills on paper, you want to keep them until you’ve had a chance to review and reconcile them. When you receive your quarterly or annual statements you can securely dispose of the previous monthly statements after making sure there are no discrepancies.
Most recent pay stub.
Any receipts or statements that affect your tax return should be kept according to your tax return rules (below).
A year or more
Documentation for any loans or insurance policies should be kept for the term of the loan or the policy.
Warranty documentation should be filed and reviewed annually. Dispose of paperwork for items you no longer own or whose warranties have expired.
3-7 years or ‘It depends’
Keep the titles for your vehicles for as long as you own the vehicle.
Keep the records for your investment holdings for at least as long as you hold the position. You’ll need the records to determine basis and holding period for tax purposes. And, you should keep some form of record of the transactions according to the tax return rules (below).
Tax returns and supporting materials should be kept for at least 7 years. The IRS can initiate an audit for any reason up to 3 years after you have filed a return. However, they can start legal proceedings or collect taxes for up to six years after you file if you fail to report all of your earnings.
Documentation (receipts) on improvements made to your home should be kept until you sell your home. And then, if you use those expenses to lower the capital gain on the sale of your home, keep those records according to the rules for tax returns.
Loan payoff records – 7 years
Medical bills, receipts for medical payments, and copies of medical policies – 3 years
Birth, Marriage and Death certificates
Military discharge papers
Social Security Cards
Keep and review on an ongoing basis
Estate planning documents – including wills, trusts, powers of attorney, healthcare directives
Inventory of safe deposit boxes
Files that you store in the cloud should be encrypted and password protected. And, you should have a backup of those files in case you ever lose access to your cloud storage provider.