Do You Know When to Toss Financial Documents?
Managing your money can create a lot of paper work, but don’t drain yourself with holding on to anything longer than you have to. If you’re like me and just want to know you have something “just in case,” then scan and save your documents in well organized folders on a computer you back up often or in a cloud based technology like Dropbox. If you opt for paperless or e-billing and receive your statements in your e-mail box, then there’s no need to scan. You can simply save your statements as a PDF and save yourself time, paper and energy!
Here are some tips on exactly when to toss old financial records.
1. Keep for a Year or Less:
Bank Statements – Review when you receive them. Look for unauthorized purchases, and keep the last three. If your self-employed, hold on to at least 12 months in order to prove your income for qualification purposes.
Monthly Bills – Review for accuracy but there’s no need to keep them for more than a quarter at the most.
Credit Card Bills – Review your bill for any billing errors. I suggest keeping these for at least six months, and indefinitely if you’ve used your credit card for business purposes noted on your taxes.
Paycheck Stub – I say you should always have your last three pay stubs. You never know when you’ll need to prove income for a loan or other necessity. Keep the last few in the year to compare against your W-2 or 1099. If it doesn’t match, go to your employer and request a change. Otherwise, you can shred them as your W-2 is good enough for filing taxes.
Insurance Policies – Always keep the most recent policy. Old ones don’t matter once a new one takes effect.
2. Keep for 7 Years:
Tax Documents – I know seven years seems like forever, but so will an IRS audit if you don’t have your tax returns in order. You have three years to file an amended return if you think you’re due a larger refund and the IRS has three years to audit you if they think you made a mistake. The IRS has six years to audit you if they think you underreported income and there is no time limit if they think you just blatantly filed a fraudulent return. If you’ve lost old tax returns and would feel better if you had a copy, contact your tax preparer and if all else fails request a copy of past tax returns from the IRS. You can get a tax return transcript for free in about two weeks by calling 1-800-829-1040.
3. Keep Forever or Indefinitely:
Loan Documents – Keep these for the life of the loan and destroy once you’ve paid it off and have title or final document proving payment in full in your possession.
Receipts – Keep anything documenting a major purchase like jewelry or a computer. You never know when it can come in handy.
Any long-term insurance policies or investment accounts you have started should be kept until maturation.
Brokerage Statements – If you’ve already begun investing, you’ll get monthly statements telling you how much you’ve made each month. Keep brokerage statements until you receive the annual statement at the end of each year. Keep annual statements until you sell the investment. You’ll use them to prove your capital gains or losses when you do your taxes.