We’re in the last quarter of the year and it’s time to think about taxes and paperwork. The biggest question that pops up every year is: How long should you keep financial records? There’s always the concern that we will throw away important documents before their time, or that some type of discrepancy will be found. Let’s dive right in and answer this question once and for all.
There is a three-year minimum
According to the IRS, there is a three-year minimum for all financial records. This includes things like bank statements, paycheck stubs, and investment worksheets.
Here’s a detailed list of items to hold for at least three years:
- Cancelled Checks
- Paycheck Stubs
- Credit Card Receipts
- Bank Statements
- Utility Bills
- Income Tax Returns
- Records of Selling a House
- Records of Selling a Stock
- Annual Investment Statement
- Quarterly Investment Statements
- Medical Bills and Cancelled Insurance Policies
- Receipts, cancelled checks, or other documents that support your income
In regards to income tax documents, you should keep all of the paperwork from the last SEVEN years. Although you can be audited up to three years after you filed a tax return, the time limit for auditing goes up if the IRS has a legitimate claim that you’ve omitted finances. Furthermore, there is no statute of limitations if you completely failed to file a return at all.
Always verify the documents are correct
While you are storing these items you should also verify they are correct. For instance, if you receive direct deposit into your bank account from your job, make sure the amounts match at the end of the year. Compare your last pay stub’s yearly pay to the total deposited into your bank. If you have any discrepancies, make sure to contact the appropriate sources right away.
Hold active documents
Additionally, there are financial records you should hold while they are active, regardless of time. This includes things like warranties, insurance paperwork, or stock certificates. For example, if the warranty on your home’s AC unit is for 20 years from the registering date, then you should keep this financial record for 20 years. Any document regarding an agreement or coverage that is active should be kept until it is terminated. Even more so, don’t forget to add at least three years from the termination date if you are using that document in part with filing your taxes.
Some documents should stay with you forever
There are some financial records that you should keep forever. It’s also recommended that these items be stored in a safe location like a safety deposit box.
The items include:
- Wills
- Birth Certificates
- Death Certificates
- Marriage Licenses
- Adoption Paperwork
- Records of Paid Mortgages
Keep good financial records
Keeping good financial records will ensure you have all the paperwork you need, when you need it. It’s tempting to shred everything, but it’s best to air on the side of caution and hold for good measure. While you should keep all documents for a minimum of three years, some will end up never leaving your possession.
