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How Long Should I Keep Financial Files?

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During tax season, many people finally dig through mounds of files and receipts thinking that it would be a great time to clean out a bunch of papers. Here are some suggestions on how long you should keep personal finance and investment records on file.

Taxes—keep for seven years.

Tax returns: IRS, by law, has three years from your filing date to audit that return under suspicion of good faith errors.

Cancelled checks/receipts (alimony, charitable contributions, mortgage interest and retirement plan contributions): Three years. The three-year deadline applies for each of these if you discover a mistake and decide to file an amended return to claim a refund.

Tax deductions taken: IRS has six years to challenge your return if they think you underreported your gross income by anything more than 25 percent.

Be aware that there is NO time limit restricting IRS if you either fail to file a return or if you file a fraudulent return.

Contributions to your IRA: keep these permanently.

If you make a non-deductible contribution on an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.

Retirement/Savings Plan statements: anywhere from one year to permanently.

Keep quarterly statements, if you receive them, from your 401(k) or other plans until you receive the annual summary. If everything matches up, then shred the quarterlies.

Keep the annual summaries until you retire or close the account.

Bank records—from one year to permanently.

Go through your checks each year and keep those related to your taxes, business expenses, home improvements, and mortgage payments. Shred those that have no long-term importance.

Brokerage statements—Until you sell the securities

You need the purchase/sales slips from your brokerage or mutual fund to prove whether or not your have capital gains or losses at tax time. If you do not have the slips, sometimes the brokerage house will provide them for an additional fee.

Bills—from one year to permanently.

Go through your bills at tax time. In most cases, you can shred the bill, like when the cancelled check has been returned. However, for big purchases, the information should be kept in an insurance file for proof of their value in the event of loss or damage.

Credit card receipts and statements—from forty-five days to seven years

Keep your original receipts until you get your monthly statement. Then shred the receipts if the two match up.

Keep the statements for seven years if tax-related expenses are documented elsewhere.

Paycheck stubs—One year.

Your annual W-2 form should match the last pay stub for the year. If it does, shred the stubs. If not, you can ask for a corrected form, known as a W-2c.

House/Condo records—from six years to permanently

Keep all records documenting the purchase price and any costs of permanent improvements made to the dwelling. These would be remodeling, additions, and installations that are a part of the house.

Keep records of any expenses incurred while selling or buying property; such as legal fees, real estate agent commissions, for six years after you sell your home.

Any improvements you make on your home, as well as expenses in selling it are added to the original purchase price or cost basis. This adds up to a greater profit (also know as capital gains) when you sell your home which lowers your capital gains tax.


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