5 Tips for Spring-Cleaning and Maintaining your Financial Records

Welcome to the end of another tax season! Now, as everyone continues to enjoy our spring weather and we move toward a hopefully relaxing and enjoyable summer, I thought I’d take some time to talk about my 5 tips to spring-clean and maintain your financial records.

This is a very popular question, especially when it comes to the amount of time suggested to keep certain documents before throwing them away, so I tried to touch on a few of the most popular documents I get questions on.  I also included a summary at the end of other documents which may help when the time comes for you to clean out your papers.

Enjoy! And as always, if you have any questions or if something strikes you that you’d like more information on, please let me know.   

5 Tips for Spring-Cleaning and Maintaining your Financial Records

1. Tax Documents Storage

After your taxes are filed, what should you do with all the forms, receipts, canceled checks and other records? What files need to be kept and what can be shredded immediately? 

The IRS usually only audits for 3 years prior of the date of your return.  So, you should keep all your tax documents until that time has passed.  Keep pay stubs that are checked against your W-2s and your monthly brokerage statements for at least 1 year.  You should also hold onto documents that support any income, deductions and credits claimed on your tax return for at least 3 years after the filing date. 

The IRS does however has up to 6 years to initiate an audit if you’ve neglected to report at least 25% of your income.  As an example, someone who is self-employed may receive multiple 1099s and it is possible to overlook some sources of income.  To be on the safe side, it is recommended for business owners to keep their 1099s, receipts and other business records for at least six years. 

Additionally, any documents that are related to a debt deduction or lose from a security should be kept for seven years.

As a general rule of thumb, anything older than 7 years should definitely not be kept. 

2. Monthly Household Billing Statements

What about gas, electric or water bills?  How long should these and other credit card statements and receipts be maintained?

With the availability of most information online, it is becoming less necessary to keep paper records after you have received and reviewed your household bills.  Check to make sure that credit card charges and refunds are posted properly before paying any bills or shredding statements.

As a better alternative, consider signing up for paperless billing and making all payments online. That not only prevents papers from accumulating in your home, but also cuts down on the possibility of lost mail and missed payments.

As a reminder, receipts that are related to your tax return (and support deductions claimed) should be kept for three years minimum.

3. Bank Statements and Cancelled Checks

Similar to monthly household bills, most of this information is available online through your bank’s website.  Additionally, most cancelled checks are a part of that storage now.  If this is the case, make sure your checks are properly reflected on your bank statements and then it is sufficient to rely on the bank site’s storage systems.

It is important to keep in mind, however, that cancelled checks relating to donations (and therefore support your tax return) should be maintained similar to the tax return requirements and discussed above.  Additionally, if you have no access to online banking, it is recommended that you keep statements and cancelled checks for three years.

4. Storage and The “Other” Papers

Many people keep a file cabinet in their home, which, for the most part, is an organized way to store papers.  There are some papers, however, that you should consider storing in more secure ways, whether that should be an in-home safe or a safe deposit box in your local bank.

Contracts and insurance policies that are active should be kept on file.  It is also important to keep any records of loans that were paid off for seven years.

Birth certificates, social security cards, passports, marriage certificates, death certificates, wills, and inheritance / beneficiary information are all documents that should be kept in storage that is both fireproof and waterproof.  These are also the same kinds of documents which should be maintained forever.

5. How do I dispose of financial documents?

Shred Shred Shred!!! Your financial documents contain enough information to cause harm if an unwanted someone gets a hold of it. Your name, address, phone number, birthdate, bank account information, social security number, credit card numbers, driver’s license number, and signature can all be found on financial documents. Even “junk mail” can provide more information than you realize, so be sure to shred that as well.

If you choose not to purchase a small at-home shredder, many retail stores such as Staples, UPS, and FedEX offer shredding services.

You can also keep an eye out for our office’s shred events where we have a truck come to our office and you can bring all unwanted documents to be shred right in front of your eyes.  Watch your emails for information on a future date!

Whatever your method, take the time to ensure that your financial record-keeping is organized, safe, and secure!

Thank you, as always, for your time.

Other Documents:

One Year:

  • Pay Stubs
  • Monthly Brokerage Statements

Three Years:

  • Form W-2s reporting income
  • Form 1099s showing income, capital gains, dividends and interest on investments
  • Form 1099s showing income, capital gains, dividends and interest on investments
  • Form 1098 if you deducted mortgage interest
  • Canceled checks and receipts for charitable contributions
  • Records showing eligible expenses for withdrawals from health savings accounts and 529 college-savings plans
  • Records showing contributions to a tax-deductible retirement-savings plan, such as a traditional IRA
  • Investment and Property Records

Six Years:

  • 1099s (All Business Related)

Seven Years:

  • Any documents related to debt deduction
  • Losses from securities

Reference: https://www.kiplinger.com/article/taxes/T056-C005-S001-how-long-should-you-keep-tax-records.html