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.