I have a file cabinet at home with bank statements dating back to when I opened my first checking account when I was sixteen years old. Nine years later, I wondered if I still need those bank statements. I also have every tax return I have filed, ever. Do I need those? I did some digging, and I found a great resource. Here is the synopsis:
Tax Returns – You need to keep all documentation around your taxes for at minimum seven years. The statute of limitations for the Internal Revenue Service (IRS) to come after you for back taxes is three years, so that is where the minimum comes from. However, if you have failed to report income, the statute of limitations is six years. To cover yourself, it is best to have a seven year record of taxes. Just to be safe, it is probably a good idea to keep your form 1040 and record of payment to the government for life, but you do not need the backup documents for more than seven years.
Bank Statements – Did you give a charitable contribution or make a business expense payment on your credit card or bank account statement? If you ever have to show proof of a deduction to the IRS, you need that statement. Like tax returns, keep them for about seven years.
Brokerage – The best advice I can find here is to keep your year end statements and trade confirmations indefinitely, but you don’t need to keep your monthly statements more than two or three months in case you find any errors. When you sell a security, you have to be able to prove the original cost for capital gains taxes. That is why you need your year end statements so long.
Retirement – To make sure you are safe if you ever have to withdraw principle (not interest earned) from a Roth or other retirement account, you have to able to prove what you put in and when you put it there. That means you need to keep retirement statements until you are at a point when you can withdraw tax free. For many of us, that means 40 years or so of records.
Utility Bills – If you have a long record of cell phone, power, or other utility bills lying around, you can free up that space today. You don’t need more than two or three months of history that can demonstrate that your payment was send and received. Once your account is correct, toss it in the shredder.
Insurance – If you have any records of claims and policy details, keep them as long as you have the policy. If you do not have proof and you ever have to challenge your insurance company, you need to have records or it never happened. For health insurance, make sure you have evidence of coverageso you are never hit by a pre-existing condition clause (while that is still legal).
Paper or Electronic Records?
I have a hybrid system. For my bank accounts, I have paper records because I never took the initiative to change to paperless and scan in my old files. For accounts that I have opened in the last five years, I have just started with electronic statements and keep them saved on my computer hard drive and an external hard drive. I also plan to buy an encrypted USB to have a third backup for only financial documents.
It is important to make sure electronic copies are safe from hackers and hard drive crashes. I would suggest that you do not keep financial data in online storage, because there is a chance that it could be hacked.
I am planning to scan in all of my old paper files and shred them someday, but that takes a lot of effort and I am much to lazy to break the status quo.
So, what do you use for record keeping? What are you policies and strategies? Please share with all of us in the comments!
Just a note: This is my own personal advice based on what I found through my own research. I am not liable if you throw something away that you need and the IRS shows up at your door.
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