by Dana George | May 18, 2020
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In the mood to organize? Make sure you don't throw away anything you might need.
If, like many of us, you have piles and files of financial documents stored around your home, you may be curious as to how long you're supposed to hold on to it all. Here's a rundown of what you need to keep and what you can shred.
Some financial documents should be held until they are canceled, sold, cashed-in, expire, or no longer serve a purpose. They include:
As long as you don't need any of the following for tax purposes, they can be shredded and recycled after one year:
Generally, the statute of limitations for the IRS to audit a return is three years (although there are exceptions to the rule, as we discuss in more detail below). Keep all IRS-related documents for at least three years. Here are some of the items you can toss at that point:
The IRS can audit you for up to six years if you under-report your income by more than 25%, overstate your basis (lie about how much you initially paid for an investment), or fail to report foreign income, gifts, or assets. Note: If you file a fraudulent return, don't sign your return, or simply choose not to file at all, the IRS is not bound to a statute of limitations if they can prove you attempted to commit fraud.
These are the documents you'll use to calculate capital gains when you sell a home. Keep them, just in case you're audited within six years of claiming the expenses on your taxes:
Although they're not necessarily financial documents, you should retain Social Security cards, ID cards, passports, shot records, birth and death certificates, marriage licenses, business licenses, and adoption papers indefinitely. Also, keep these financial documents:
And in case you ever need to file an insurance claim, keep the paperwork associated with your purchase of these items (or until you no longer own them):
Make it a point to shred documents you no longer need in order to protect valuable information and reduce the risk of falling victim to credit card fraud. The best place to store remaining records is somewhere that's out of sight of casual visitors, preferably in a waterproof/fireproof box. Before storing those records away though, scan and store them online in order to ensure that you have backup copies.
Unless you're a person who enjoys the process, there's nothing fun about gathering and organizing important papers. Still, doing so can save you time and stress when you need access to them. It can also help you get a better sense of your financial situation, including how much you have in your bank account.
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