As you go through your financial documents during this tax season, you may find yourself wondering how long you should keep these documents. You probably know that certain documents like tax returns, bank statements, etc. need to be kept, but for how long and in what format?
This article will help you determine which financial documents to keep and the right time to discard the ones you should toss. Once you’ve identified the keepers, we’ll help you with the best way to safely store all that personal information.
How Long To Keep Financial Documents?
1. Documents To Keep Up To Three Months
Monthly utility statements, purchase receipts, credit card statements, deposit and withdrawal slips fall under this category. Unless you are self-employed and you need to keep business related documents or receipts for tax purposes, you can dispose of them as soon as you verify your payment was processed, or check them against any physical receipts or bank records that record your purchases.
If you’ve purchased something that applies to a warranty or tax claim, then keep those receipts with the warranties or taxes.
2. Documents To Keep For A Year
Keep a paper or digital copy of the past years’ worth of your monthly bank statements and cancelled checks. Additionally, hold on to your pay stubs to verify the accuracy of your Form W-2 when tax season arrives.
3. Keep Tax Documents For 3 – 7 Years
The IRS recommends keeping tax documents 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. If you file a claim for a loss from from worthless securities or bad debt deduction, you should keep those records for 7 years.
Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out. Specific records that the IRS recommends you keep for tax purposes include bills, credit card and other receipts, invoices, mileage logs checks and other proof of payment and any other documentation that supports deductions or credits you claim on your return.
4. Financial Documents To Keep Permanently
Financial documents you should never get rid of are usually official papers from government agencies, involve lawyers, will be important to your family if you pass away, are related to something of significant value (like a jewelry appraisal), or are a pain to replace.
- Alimony, Custody or Prenuptial Agreements
- Birth and death certificates
- Divorce Decree
- House deeds and mortgage documents
- ID cards and passports
- Life insurance policy
- Loan documents
- Marriage license
- Military discharge papers
- Pension plan documents
- Social security cards
- Vehicle titles
- Wills, living wills, trusts and powers of attorney
Additionally, you may want to consider permanently keeping:
- Cancelled checks for major home improvements and maintenance (for the length of home ownership)
- Medical records
- Photos or video tapes of valuables
- Tax return copies and worksheets
- Income tax payment checks
- Annual IRA or other investment contribution statements
Storing Your Financial Documents
1. Safe-Deposit Box
Use a safe deposit box for financial documents that are not easily replaced. These include lifetime documents such as birth & death certificates, passports, social security cards, vehicle titles, marriage license and divorces decrees.
Additionally, keep military discharge information, life-insurance documents, loan documents and, in case you need to make an insurance claim, an inventory or your home’s contents.
2. Fireproof Safe Or Password Protected Electronic File
Use a safe or electronic files for other financial documents such as bank and investment statements, pay stubs, tax documents, pay stubs, insurance policies, etc.
To keep electronic documents safe, be sure to use complex passwords – according to Lifehacker getting your computer to make and remember your passwords for you may be the best choice.
Properly Dispose Of Unneeded Documents
When it’s time to discard your receipts, credit card statements or other financial documents containing your personal information, be sure use a shredder. Cross-cut and confetti-cut shredders offer better security than a strip-cut shredder because they can tear your paper into countless pieces.
*Disclaimer: Citywide Home Loans does not provide financial planning services or any other service apart from lending. You should always consult with your legal, tax and financial advisors to determine which strategy is the most suitable for your specific circumstances.