If you’re like most people, you somehow accumulate a small mountain of paperwork through major purchases, financial moves, and investments. However, no one wants to toss out a crucial document, only to really need it later on for a tax audit or other reason. So which documents are safe to toss and when?
First off, according to the IRS:
The IRS has three years from your file date to audit your return if there is suspicion of a good-faith error.
That three-year rule works both ways if you, the taxpayer, find an error and want to file an amendment.
However, the IRS has up to six years to call you to the mat if it suspects you underreported your gross income by 25% or more, and there is no time limit on fraud.
Keep your state and federal tax returns for six years.
Mortgage and real estate documents:
Year-end mortgage statements are useful for three years after the due date of the tax return showing that deduction.
For PMI (Private Mortgage Insurance), hold on to monthly bills and canceled checks or bank statements that prove your payment for three years after the due date of the return showing the deduction.
Property tax payments (the tax bill and canceled checks or bank statement proving the payment) should be maintained for three years after the due date of the tax return showing that deduction.
Don’t forget to hold onto receipts for energy tax credits, like energy efficient windows, doors, solar systems, heating and cooling systems, etc.
Home appraisals can be used to calculate depreciation and should be kept as long as you own the property plus three years. Remember to update those records when you get a new appraisal for a refinance.
Receipts for capital expenses like additions or home improvements should likewise be kept as long as you own the property plus three years.
Real estate investments:
Landlords should file their LLC agreements for real estate investments as long as the partnership or LLC exists.
Your landlord insurance policy should be in the file until the next year’s copy arrives.
It’s a good idea for landlords to even keep insurance payment receipts like a canceled check or bank statement showing the payment for three years after the deduction.
Insurance and warranties:
Whether renting or a homeowner, it’s a great idea to make a detailed inventory sheet for your home’s possessions, including photos, model numbers and serial numbers for any expensive goods. Keep these forever and just update them once or twice a year.
Homeowners insurance policies should be held until you receive the next year’s policy.
Service contracts and warranties are necessary as long as you have the item being warrantied or until the warranty term expires.
Receipts for home repairs (separated for labor and materials) should be kept until the home warranty expires.
Bank records:
Every month balance your checkbook and review your bank statements for accuracy!
Once a year, go through your check stubs and copies, keeping only those big ones related to taxes, business expenses, or home improvement. You can shred the smaller ones, or just keep them all together cataloged by year.
If your bank issues an annual report the entire year’s transactions itemized, it’s fine to shred the statements. Keep the report or records for at least three years.
Bills:
When you receive bills for phone, cable, and utilities every month, rectify them against your bank statements to make sure they’re correct, then it’s ok to shred.
If they issue a final statement, then you can just keep those for three years for tax purposes.
Pay stubs:
Reconcile your pay stubs with your W2, and then shred the stubs.
Charity records:
Keep receipts for charitable contributions for three years.
Credit cards:
Keep all credit card statements for seven years.
Medical records:
Keep medical records and insurance documents for five years.
Investments:
If you made a nondeductible contribution to an IRA, hang onto those records indefinitely.
Keep quarterly statements for a 401(k) or other plan until you receive and go over your annual summary. Keep those annual summaries until you retire or close your accounts.
Same thing for mutual funds, check for accuracy and then you only have to keep the annual statement.
Business expenses:
Keep business receipts for seven years if they are tax-documented expenses.
Keep payroll records permanently, partnership agreements, and other important documents permanently.
Other miscellaneous records:
Wills and property trusts should be kept indefinitely or until updated and the old version is no longer valid.
You’ll want to hold on to a divorce decree with home sale clause as long as your ex-spouse owns the home, plus three years minimum.
If you have live-in help like maids and nannies, etc., hold on to employment files (W-2s, W-4s, 1099s, time sheets, pay and benefit statements, etc.) for at least four years after you make (or owe) payroll tax payments or claim them on your taxes.
Notes on document storage and disposal:
You might want to store all of these documents in banker’s boxes or a fireproof filing cabinet, but it’s a good idea to also make digital renderings, as well.
If you handle much of this online, make sure you don’t rely on the institution to store your records for you. Gather those offline and put them in a separate file on your computer, making sure to back it up.
Don’t worry if you don’t have a scanner at home (or want to take the time to load and scan every page). The cheap and easy way is just to take a clear digital photo with your camera or even phone!
Be sure to label them clearly and store in the appropriate folder so you can find them, but then store those in some sort of password-protected hard drive or securitized cloud.
When it does come time to get rid of your old and unneeded documents, you should always shred the paperwork – not just throw it in the trash, to avoid the risk of identity theft.
One last suggestion: Putting a few minutes into document organization once a month will help you avoid wasting far more time later on when you really need it!