August 7, 2015

Document Retention To Keep or Not to Keep?

Good record keeping is an essential tool for your financial well-being. The question often arises about how long specific records should be kept.  Disposing of records prematurely can create potential tax and legal problems. Keeping records too long wastes precious space and resources.

We have compiled a list of important documents with suggestions on how long they should be retained.  Please keep in mind that other financial institutions such as insurance companies or creditors may require that you keep tax documents longer than is required by the IRS. Some sources even recommend that you keep important tax documents forever to avoid losing crucial financial data that may impact your retirement plans or other long-term financial projects.

Please note that if documents contain sensitive information (account numbers, personal identification numbers etc.), you should shred the documents before disposing of them.

Tax-Related Information

Generally, tax-related information should be retained 7 years after a tax return has been filed. However, please note the below exceptions to this rule related to assets that may affect future tax returns and, thus, have a longer suggested holding period.

Tax Returns and Supporting Documentation

Although the statute of limitations for an IRS audit expires after 3 years, underreporting income by more than 25% automatically extends the statute of limitations to 6 years from the time the return was filed. Cases of tax fraud have no time limit.  In the case of a fraudulent tax return, the statute never expires and those returns must be kept forever.

Keep gift tax returns, valuation reports, bank records, trust documents and other items substantiating a gift tax return until the donor’s estate tax return is settled.

Real Estate Purchase and Improvement Documents

Records of the cost of real estate and any improvements to it should be retained until the property is sold, and then generally for another 7 years.

Stocks, Purchase of a Business and Other Investments

All statements and tax information relating to stocks,bonds, mutual funds, limited partnerships, rental property, collectibles and other investments should be kept until after the investments are sold, redeemed, or given away.  Generally, such records should then be kept for an additional 7 years.

Non-Deductible IRA Contributions

You should keep evidence of these contributions until your money is withdrawn from the plan.  These contributions should also be reported on Form 8606, which is included as part of your Form 1040.

Bank Statements, Credit Card Bills and other Bills

Generally, you do not have to retain personal banking, credit card or other bill statements for long unless any of these may be substantiation for deductions on your tax return or if there are warranties that you might need to utilize at some point in the future.

ATM Receipts

ATM receipts may be shredded after your checkbook has been balanced. Confirm that the deposits have been posted.

Credit Card Receipts and Cancelled Checks

Keep credit card receipts and cancelled checks until your statements are reviewed and expenses are verified.  Keep these documents for seven years if business related.  If your bank does not return copies of your cancelled checks, they are required by the UCC to retain copies for 7 years.

Credit Card Statements, Bank Statements, and Utility Bills

Hold on to these documents for at least three months if for personal use. Maintain for seven years if for business use, or if used for a tax deduction.

Monthly Bills

Shred monthly bills once payments clear the bank account. Receipts for larger, insured items should be kept for insurance purposes.

Repair Receipts, Warranties, and Auto Records

Keep these records for as long as you own the relevant assets. If the records relate to home repairs, keep them for at least 10 years, in case you need proof with regard to guarantees of workmanship.

Miscellaneous Personal Documents

Pay Stubs

Save only the most recent paystub if it contains year-to-date information. You may need three to six months of history if you will be applying for a mortgage.

401(k) Statements

Keep monthly or quarterly 401(k) statements until the annual summary arrives. Save your annual summaries until the account is closed.

Insurance and Medical

Keep all health related records and bills for a minimum of five years.

Mortgage and Other Loan Documents

Keep your promissory note, security instrument, HUD statement and all other mortgage and refinancing closing documents for at least seven years after mortgage or loan is paid off.

Permanent Documents

Certain documents such as birth certificates, adoption paperwork, education records, professional license records, military records, marriage licenses, divorce degrees and death certificates should be kept forever.

We hope this information is helpful to you.  Please don’t hesitate to contact us if you would like to discuss your personal document retention policy.  We are happy to assist!

 

Sources Cited

O’Connell, Brian. “How Long Should I Keep My Tax Records?” Investopedia. N.p., 04 Feb. 2014. Web. 26 May 2015. <http://www.investopedia.com/ask/answers/020414/how-long-should-i-keep-my-tax-records.asp>.

“How Long Should I Keep Records?” IRS.gov. Internal Revenue Service, 31 Mar. 2015. Web. 26 May 2015. <http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-long-should-I-keep-records>.

Rosenberg, Eva. “Never Throw Away Your Tax Returns.” MarketWatch, 22 Apr. 2013. Web. 19 May 2015. <http://www.marketwatch.com/story/never-throw-away-your-tax-returns-2013-04-20>.