By Larry Weiss
Learn about Larry on NerdWallet’s Ask an Advisor
April 15th each year is a great time to look at spring cleaning of old financial records. Many clients ask, which records do I need to keep? When can I get rid of my piles of paperwork? While there are no hard and fast rules, we developed a list of guidelines that people may find useful. You should always contact your tax advisor if you have specific questions.
Let’s breakdown the categories:
Permanent; One Year; Seven Years; and Other Time Frames.
- Your income tax return. You should keep copies of your federal and state tax returns permanently.
- Copies of home purchase contracts. Also keep a record of improvements such as a remodel and additions. Also include legal fees and agents’ commissions relative to the real estate purchase. These are important when determining the gain on the sale of your real estate.
- Birth certificates, marriage certificates, and living trusts.
- Personal health records, including primarily contact information of your doctors and current prescriptions being taken.
- IRA contributions. Important if you made any non-deductible contributions.
- Pay stubs- match your pay stubs for the year to your w-2. If they match, you can shred the stubs. If they do not, contact your employer to get a corrected w-2.
- All documents that back up your income and deductions on your income tax return. Include cancelled checks, w-2’s, 1099’s, medical expenses, credit card statements and other items that are the basis of tax return numbers.
- Home insurance. It is generally recommended keep a copy of your insurance for seven years.
Other Time Frames
- Keep a record of the purchase of any stocks, bonds, mutual funds or other investments. You will need the record of purchases to accurately record your cost basis when you sell these investments. Your taxes are based on the sales proceeds of your investment minus the cost of your purchases. This activity is required to be reported on your tax return . After your report this on your tax return you should keep the paperwork seven more years.
- Life insurance policies. You should keep policy information 3 years after the policy has terminated.
- Medical expenses. Generally five years is deemed adequate for bills, statements and prescriptions — seven years if you are deducting these expenses on your tax return.
- Bank statements. Three month history is sufficient. Remember you can get copies from the banks for the last seven years.
- Utility bills. Keep the last three months’ bills, unless they are a deduction on your income tax return. Then see seven year rule relative to your tax return.
- Mortgage statements. Generally keep seven years after the property is paid off. Also check with your county to make sure that the mortgage is longer listed in their records.
Many clients now use a couple of additional tools to help with record retention. A shredder to help dispose of documents in a safe manner and a scanner which can used to save an image of the document you want to save. These images will be saved on your computer or some other data storage area.
Larry K Weiss CFP®, CPA
CA insurance License #0784716, Securities and investment advisory services offered thorugh NEXT Financial Group, INC. Member FINRA/SIPC
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