Financial records - what to keep, what to toss
The other day I was filing away my paystub and saw all my financial files. It got me thinking about how I haven’t gone through them in a while and if I should redo anything. I started reviewing in my head what financial records to keep and for how long and what to just toss. Here’s what I came up with.
- Tax returns and forms. Bottom line: Keep for seven years. I’ve always heard to keep them for seven years. I knew that you can be audited any time if the IRS suspects fraud. I looked it up and in addition to that, the IRS has six years to audit you if it believes you underreported your income by 25% or more. My question is, if underreporting your income by 25% or more isn’t fraud, what is? You know somewhere in the 44,000 pages of tax code is an actual definition. Finally, a traditional audit happens within three years. That’s the period of time during which you can amend a return, by the way. I’ve had to file an amended return, so I can vouch that keeping your return can be important.
- Property records. Bottom line: Keep until you sell the property.
- Canceled checks. Bottom line: What canceled checks? I don’t think most banks have returned canceled checks since the 80s. In a bit of coolness, my bank shows the check on my online account statement as a link you can click to see the scanned image. I write checks so infrequently that I often don’t remember why I wrote one. With one click I can see my contribution to Save the Whales.
- Receipts. Bottom line: Depends. With the vast majority of receipts, I keep them only until I put them in Quicken. The only exception is for clothing we haven’t already ripped the tags off of and car parts I haven’t installed yet or something like an appliance. In another bit of coolness, at Target (where we shop quite a bit), you can just give them your credit/debit card and they can look up the purchase without a receipt. I’m sure other retailers do this, too. Oh, yeah, keep tax related receipts of course.
- 401(k) and IRA statements. Bottom line: Keep quarterlies until yearly arrives; keep yearly forever. When I receive the year-end statement, I toss the quarterly statements. I keep the yearly statements until I roll-over the account.
- Brokerage/Mutual fund statements. Bottom line: Keep forever. You need to know when you bought a security and how much you paid for tax purposes when you sell. For quarterly/yearly statements, I use the same schedule as 401(k)s above.
- Credit card statements. Bottom line: Pay and shred. The exception might be if you suspect the possibility of challenging a charge.
- Paystubs. Bottom line: Keep until you get your W-2 then shred.
All this talk about shredding makes me want to grab my board. Just kidding. I’m a total nerd and have never skated in my life.
These are just my personal guidelines for recordkeeping. I don’t know what, if any, official rules exist but I’d like to hear other peoples’ ideas.
April 5th, 2007 at 3:50 pm
I keep all my documentation for quite a while. Sometimes, though rarely, this comes in handy.
For example, for the 2006 tax year we can request a refund of federal excise tax on long distance from 3/2003 - 8/2006 (I might have the dates a little wrong). In our case, we could choose the standard $40 refund, or specify how much excise tax we’d paid. Fortunately we have all of our bill stubs for landline and cellphones for the last several years.
Another example; there is a class action lawsuit against credit card companies for foreign transaction fees charged over the last several years. I keep all my credit card statements forever, so it was easy for me to go back and add up my foreign transactions to submit a claim.
Another example: Sometimes at tax time there are questions about exactly what income had tax withheld during the year. Since I have old paycheck stubs, I can easily check back and get detailed withholding information.
My theory is that it takes fairly little space to hold many years worth of records (generally I fit 5 years of records in one bankers box). My strategy is as *soon* as I take care of something to file it away accurately. 10 years of documents is worthless if they aren’t organized well. On the other hand it takes fairly little effort to keep things organized as you go.
April 5th, 2007 at 8:11 pm
You’re right about the examples you cite. If I’d kept records like you did, I could’ve taken a deduction on the phone thing of greater than the standard deduction. My thing is I’d rather not have to file everything (I tend to get behind) and keep track of what is where. I figure with most important documents, I can get them elsewhere if don’t have them, if necessary (even if I have to pay for the privilege).
April 9th, 2007 at 2:05 am
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April 9th, 2007 at 2:42 am
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April 9th, 2007 at 11:31 am
Great list. I am certainly too trustworthy of the statements beign stored online and I definately under-deducted for the excise tax. I’ll have to do a better job. Thanks!
April 13th, 2007 at 7:08 pm
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June 21st, 2007 at 8:16 am
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July 10th, 2008 at 2:14 pm
I’ve gotten into the habit of storing every important financial documentdigitally, most things including my taxes are produced in a digital format anyway and that is how I get them, everything else I scan. This lets me keep a lot of stuff I probably don’t need to keep anyway, like every bank statement, every credit card statement, etc. But since I get them all digitally all I have to do is click the save button. And yes, I backup regularly both to an external drive as well as to a web-based remote drive.