Keeping and storing financial records is costly. It costs in office supplies such as boxes, folders, and filing cabinets to organize the records. It costs for the extra room the files take up. It costs in labor to develop and maintain the record retention policies and locate old files when necessary. But throwing files away too early can be costly too.
Personal Income Tax Returns — The IRS has three years, after you file, to audit. It is often recommended to keep tax returns for six years. You may want to keep them (paper or digital) forever, but you can weed out canceled checks and old receipts three years after you filed the tax return.
Bank, Broker & Other Financial Institutions — Review your year-end statements to make sure they are accurate then, you can toss the monthly statements. Keep those year-end statements in your tax files for at least three years after the due date of your return (or six years if you’re self-employed). Many financial institutions offer on-line statements. Save them to your computer, and toss all the paper.
Home Improvement receipts — They may come in handy to show potential buyers how much you spent to upgrade the property. You probably won’t pay taxes on the sale of your principal residence unless you’ve lived in it for less than two years, you rented out part of it, or your profit on the sale exceeded $250,000 if you’re single, $500,000 if you’re married.
ATM receipts & deposit slips, etc – Get rid of them as soon as you match them up with your monthly statement. Ditch your pay stubs as soon as you receive your W-2 for the year. You can also toss paper copies of your credit-card, utility, phone and cable bills as soon as the next month’s bill acknowledging your last payment arrives (unless you need to keep the bills for tax purposes — if you deduct home-office expenses, for example). You may also want to hold on to your utility receipts if you plan to sell your house soon, so you can show prospective buyers how much your utilities tend to cost.
IRA contributions – Any year that you make a nondeductible contributions to a traditional IRA, you must file Form 8606 to document those contributions. Then hold on to all of those 8606 forms until you withdraw all the money from your IRA, so you won’t end up overpaying your tax bill when you start to take out the money in retirement.
And when you do decide to toss any of these papers, be sure to shred them so your garbage doesn’t become a treasure trove for identity thieves.