What Financial Documents Should I Keep and for How Long?

I am moving for the first time in 15 years. Moving made me take stock of what I have in my house and what I really don’t need to take with me. While going through old filing cabinets, I realized how many paper files I had from when I first started First Steps Financial over 10 years ago—back before we went paperless.

I mentioned this to one of my clients and she said she had no idea what she should be keeping or throwing out. We started discussing the importance of maintaining copies of your financial documents and working with a partner that has your back in case of an audit. Because this person is a client, I let her know we save her bank statements, tax returns and any receipts supplied to us, either inside of QuickBooks Online or in our secure online filing system, Sharefile.

Since I had quite a bit of paper to get rid of before my move, I called around to find a mobile shredding company that was insured, provided a certificate of destruction and could handle sensitive documents. Then I had to go through all the paperwork and see which documents I still wanted and which ones were required. 

After doing some research, I found the following on the IRS website and other sources for best practices for keeping financial documents. 

Documents to Keep for 3 Years

Keep income tax records and all related documents (receipts, bank statements, etc.) for three years from the date you file your return or two years from the date you pay your taxes, whichever is later (IRS- How long should I keep records?).

• Income tax returns (see notes from the IRS below)
• Receipts 
• Bank statements
• Any income/expense documents related to returns

Documents to Keep for 7 Years

Loan Documents

It is a great feeling to pay off a loan. Keep the documentation so if there is an error at the bank, you have proof of payment and closure of the loan.

Keep Until No Longer Active

• Active contracts
• Insurance documents
• Property records
• Stock certificates

Keep all these items while they are active. After contracts are completed or insurance policies expire, then you can destroy these documents.

Keep These Items FOREVER

• Marriage licenses
• Birth certificates
• Wills
• Adoption papers
• Social security cards
• Death certificates
• Records of paid mortgages

Keep It All Online

Retain copies of all these documents online. You can scan them into your computer or pay for a secure cloud-based filing system, such as Sharefile. 

Keeping your documents organized, either online or paper, will allow you to access them as needed and to purge them when they are no longer necessary.

I am looking forward to moving a lot less paper this time and keeping all my records that I do decide to keep organized!

Some Notes About Tax Returns from the IRS 

1. Keep records for 6 years if you do not report income you should report, and if it is more than 25% of the gross income shown on your return.
2. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
3. Keep records indefinitely if you do not file a return.
4. Keep records indefinitely if you file a fraudulent return.
5. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.