Save It or Shred It: How Long To Keep Your Important Financial Documents

Do you know how long to keep your important records? When it comes time to make the decision to save or shred, knowing which financial documents should be held on to will prevent you from unnecessary trouble down the line. We'll tell you which financial forms to keep and how long to keep them so you can file your records with ease.

What financial documents should you keep?

  • Assets
    • Real estate
      • Deeds, closing documents, mortgage documentation, insurance, and receipts for home improvement projects.
    • Vehicles
      • Titles, insurance, and leasing information.
    • Financial
      • Records of stock purchases, stock certificates, and retirement plan information.
  • Receipts
    • Receipts for anything that you would want to itemize on your tax return.
    • Receipts for charity donations.
  • Statements
    • Bank statements should be kept for 3 years in order to be available in case of an audit.
    • If you’re self-employed, monthly bill statements such as your electric, phone, and cable bills are necessary for proving deductions.
  • Prior tax filings
    • Copies of your previous tax filings should be made and kept, as the information on them will be needed when completing the next years' taxes.
  • Paystubs
    • Paystubs should be kept until you receive your W-2 in order to ensure that the document is filled out correctly.

How long should you keep financial documents?

How long you should keep documents depends on the type of documents, its purpose, and what it is recording. For tax purposes, the IRS details a period of limitations that is helpful in determining how long to hang on to your important records.

Time Documents
Less than 1 year ATM receipts, paystubs, bank deposits, and credit card payment receipts
1-3 years loan documents, car titles, stocks, bonds, and mutual funds, receipts for items used as deductions, bank statements
7 years previous tax returns, all tax records
Forever records related to capital assets, IRA contribution statements, wills

What documentation is needed for tax returns?

When the time comes to prepare your taxes, certain financial documents are necessary to file accurately. Some documents will be those that you already have on hand after careful collecting throughout the year, while others may be mailed to you right before tax time.

  • Income documentation
    • W2s, 1099s, and paystubs
  • Prior tax payments
  • Supporting documentation
    • Receipts, bills, and bank statements

Even if a document is not needed for your tax return, that does not mean it should be disposed of without consideration. Nontax documents should still be held on to for an appropriate amount of time in case they are needed for other purposes such as insurance documentation or credit.

Get Help Filing Your Taxes

Why keep financial documents?

At first, keeping a file of financial documents for such long periods might seem unnecessary. However, holding on to important records can help you in a variety of situations such as dealing with the IRS, preparing financial statements, and negotiating with the bank.

  • Audits
    • If you get audited by the IRS, it is crucial that you are able to produce your financial documents quickly.  
  • Applications
    • When applying for a mortgage or other large loan, you may be asked to produce previous tax returns as proof of income.
  • Amendments
    • If you need to amend a tax return, you will need to reproduce the relevant documentation.

How to dispose of financial documents

Financial documents contain a wealth of sensitive information such as your name, address, and Social Security number. It's important to shred any financial document you need to dispose of in order to not get any personal information stolen by identity thieves. This information can be used by malicious thieves in order to open up lines of credit or even file a fraudulent tax return in an attempt to collect your tax refund.

Investing in a shredder will help you to eliminate any traces of personal information located on your financial documents. Often times, there are also free shredding events available in your community where you can easily shred documents. Of course, going paperless and using e-statements and documents can also help greatly reduce the risk of identity theft.

Posted: 27 Apr, 2020

The Ageras authors don't provide any personal advice with regard to financial or fiscal matters - but accountants do. Fill in the form and receive non-binding quotes for professional tax advice.

Categories

About us

Ageras connects customers with the right bookkeepers and accountants. We aim to create transparency in the financial sector, to the benefit of clients, companies and the industry as a whole.