Keep important documents safe by storing them properly.© BillionPhotos.com/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.Decluttering can bring a feeling of order to your home and your daily life, whether it involves donating old clothes, toys, books, or household goods. But what about all the paper clutter? If you have boxes of old checks or utility bills in your basement or attic, it may be time to toss them. Sorting through and shredding documents you no longer need will lighten your load and spare your heirs the hassle later.
How long to keep tax returnsOne of the most common reasons to retain paperwork is to back up your tax return. The Internal Revenue Service (IRS) has clear guidelines on how long to keep records, so if your goal is to be prepared for an audit, you need to retain them only for a specific period.
If you filed a tax return correctly, keep the related paperwork for three years from the filing date or due date (whichever is later). Different rules apply if you didn’t file, filed fraudulently, or failed to report all your income. The IRS can pursue cases of fraudulent or unfiled returns indefinitely, and if you underreported your income, the IRS can look back as far as six years.
To be safe, save your tax return and any supporting documents for at least three years—or longer if there’s a chance you underreported your income.
Storing income-related documentsIf you receive paychecks through direct deposit or by check, review your electronic or paper pay stubs and compare them with your W-2 at the end of the year. If your W-2 accurately reflects your income, you can safely delete or dispose of the year’s pay stubs. If you earned income as a contractor, save proof of that income for three years after the related tax return filing (or six years if there is a chance you underreported your income).
Bank and investment statements that show income not reported on your W-2 should also be saved for three years after filing your tax return.
If your bank statements aren’t needed for tax preparation, you likely don’t need to keep them. Once you’ve reviewed your monthly statements for accuracy, they can be shredded or deleted—although some experts recommend keeping them for a year. If you need a statement later, such as for a loan application, most banks provide online access to past statements.
Managing receipts and expense recordsKeep all receipts for items you deducted on your tax return, such as real estate taxes or charitable donations, for at least three years after the filing or due date. For deductions related to bad debts or losses from worthless securities, such as shares in a defunct company, the IRS requires you to retain those records for seven years from the filing date.
Receipts for home improvements to your primary residence should be kept until you sell your home. If the sale is reported on your tax return, hold onto those receipts for an additional three years in case of an audit.
How to organize health care documentsProof of health care coverage that is claimed on your tax return should be kept for the three years required for tax return documents. And if you used a health savings account (HSA) or flexible spending account (FSA) for medical expenses, keep your receipts for three years past the related tax return filing date.
Health insurance companies may request proof of claims (or lack of claims) for eligibility going back up to five years. To be safe, consider keeping health records for at least five years.
To stay organized, create a spreadsheet that tracks medical procedures and treatments for each family member. This also makes it easy to reference when the last colonoscopy, mammogram, or other procedure was completed—especially if your health care provider doesn’t offer an online portal with a service history.
Essential documents to keepImportant documents should be saved in a location known to your spouse and heirs. It’s also a good idea to create a document listing your utility, banking, investment, and credit card logins and account numbers in case of an emergency. Examples of essential documents include:
Identification: Birth certificate, passport, Social Security cardLegal and financial documents: Will and/or estate plan, car titles, house deed, marriage/divorce certificatesEducation and investments: Diplomas, paper stock, and bond certificatesTax records: Tax returns from the past three years (or six years if you underreported income)The bottom lineReducing paperwork in your daily life can help to eliminate clutter, which studies show can improve mental health. Paper will continue to come and go, so the goal is to keep documents only as long as needed.
In general, tax-related documents should be kept for at least three years. Other paperwork, such as bank, utility, credit card, and other statements, can be discarded unless you need them for tax or other purposes.
To protect your personal information, shred old documents before discarding them. You can shred them yourself with special shredding scissors or a document shredder. You can also take advantage of free shredding days offered by some municipalities or use a document shredding company. Some banks and credit unions also provide shredding services.