Bills, mortgages, bank statements, brokerage statements, credit card statements -- being an adult certainly does require a lot of paperwork. To keep your paper trail under control, it's important to develop a well-organized document-retention process.

"Having an organized process will pay you back in the future," said Greg McBride, chief financial analyst at Bankrate.com. "What you don't want to do is get yourself in the situation where you've piled up a bunch of stuff and then have to schedule time to pare it down."

Already have a mountain of files stuffed with old bills and receipts? Don't worry. A one-time deep dive to shred what you no longer need and sort the rest into folders should solve the problem. Just be sure to sort as you go in the future.

"It requires an initial investment of time to trash what you don't need, but after that, it should be an ongoing process," McBride said.

Here is a guide for how long you should keep different kinds of financial records before putting them through the shredder (and yes, it should be the shredder, not the trash).

Man shredding documents in a paper shredder

Image source: Getty Images.

Tax documents 

Keep tax-related records for seven years, McBride recommended. The Internal Revenue Service (IRS) can audit you for three years after you file your return if it suspects a good-faith error, and the IRS has six years to challenge your return if it thinks you under-reported your gross income by 25% or more, according to Bankrate.com. A seven-year window should cover you in either event.

Here's the trickier question: What exactly counts as a tax record? Tax returns are a no-brainer. But you should also aim to keep backup evidence for items you claim as deductions, including canceled checks and receipts for things like alimony payments, charitable contributions, mortgage interest payments, and retirement plan contributions.

Keep in mind that these guidelines are all geared toward complying with federal tax obligations. Check with your state tax office to learn how long you should keep your state tax records. 

Property records

If you're a homeowner, you should keep documents related to the purchase of your home, as well as records of substantial improvements you've made, such as remodeling projects and additions. Keep these on hand for at least six years after you sell the home, Bankrate.com advised.

In addition, it's important to keep records of the expenses you may have incurred in buying or selling your home such as legal fees and commissions paid to real estate agents.

Why? Both of these types of expenses are included when calculating your capital gain, the profit from the sale of an asset. If you've made improvements to your home, or incurred expenses when trying to sell it, these expenses get added to your original purchase price, thus lowering your capital gain. The lower your capital gain, the less you might have to pay in capital gains tax when you sell your property.

If you're a renter, you have it easier. It is OK to shred rental agreements after you've moved out and the landlord has returned your security deposit, McBride said.

Mortgages and other loans

Keep documents related to mortgages and other types of loans, such as student loans or auto loans, at least until you have paid off the loan.

It might be wise to keep these documents indefinitely in the event you are questioned about whether or not you repaid your loan.

Bank records

Here it's a matter of picking and choosing what you might need in the future. It's a good idea to go through your checks once a year and to keep those related to your taxes, business expenses, home improvements, and mortgage paymentsYou can shred the others that have no long-term importance.

If you bank online, of course, you can simply print out the statements you might need down the road.

Paycheck stubs

If you don't get direct deposit, you can shred physical paycheck stubs at the end of the year -- but only after verifying that the stubs match up with the annual W-2 form your employer sends out, Bankrate.com advises. If the two don't match, use the stubs to corroborate your request for an amended tax form.

Credit card receipts and statements 

When your monthly statement comes in, you should check it against any physical receipts or bank records that record your purchases. After that, feel free to send them to the shredder -- unless you used your credit card to buy something you plan to claim as a tax deduction. In that event, put the receipts and statements in the seven-year safekeeping folder with other tax-related items.

Brokerage statements

It's a good idea to hold on to quarterly brokerage statements until you have the annual summary in hand to make sure they match up, McBride says. It's also wise to keep records of purchases and sales of securities in case you need to prove capital gains and losses at tax time. And remember: Once you've claimed something on your taxes, it's not a bad idea to keep it for seven years, just in case.

Bills

Bills, bills, bills. If you're like most people, they make up the bulk of what's in your files. McBride says it's OK to shred most bills as soon as your payment clears.

If you've gone in for any big-ticket items, however -- furniture, jewelry, computers or other expensive electronics, etc. -- keep the bill as long as you have the item. You never know when you'll need to substantiate an insurance claim in the event of loss or damage.

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