When To Throw Away Financial Files


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And When to Keep Them…

It’s that time of year – time to start collecting your paperwork and get ready for tax season.  But does the idea of digging through years of receipts, bills and statements stop you dead in your tracks?

It’s hard to know just how long you really need to hang on to your financial paperwork, but we have a Fab & Fru cheat sheet that will help you get this year’s taxes in order, cleanse your files, and prepare you for the future all at the same time.  All you have to do, is bite the bullet and get shredding!

Taxes, Cancelled Checks, & Receipts

The rule of thumb is to keep all papers that back up your tax return for seven years.  This includes any tax filings, returns, cancelled checks and major receipts.  It also includes alimony payments, charitable donations, mortgage interest statements, investment statements, and retirement plan contributions.

The IRS has three years from your filing date to audit your return if any “good-faith” errors are suspected. And  you have an additional three years to file an amended return to claim a refund if you discover a mistake. If the IRS suspects that your gross income was under-reported by 25% or more, they have six years to challenge your return. However, there are no limits for when the IRS can audit you if you fail to file your taxes at all, or file a fraudulent return.

IRA Contribution RecordsFile Cabinet Overflowing with Paperwork --- Image by © Royalty-Free/Corbis

As far as your retirement accounts are concerned, it’s best to keep all non-deductable IRA contribution records permanently, to prove that you paid taxes on this money.

Keep your quarterly 401(k) or IRA statements until you receive an annual summary.  Double check that they match up before shredding your statements, and be sure to save the annual summaries until you either retire or close the account.

Your Bank Records

Go through your bank records each year, and keep only those documents related to tax filings, business expenses, home improvements and mortgage payments.  Again, anything used for tax deductions should be saved for seven years.  Feel free to shred the rest!

Keep your brokerage statements until you sell the securities that they reflect. You will need to have the purchase slips from your brokerage or mutual funds on hand to be able to prove whether you have capital gains or losses come tax time.

Investment and Dividend Statements

Like your banking records, keep your monthly statements until you receive your annual statement.  Make sure your annual statement is accurate then shred the monthly statements. Keep the annual statements until you sell the related investments.

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