Deciding which records to keep and for how long can be a confusing process, one which leads us to keep everything "just to be safe." Despite the revolution in on-line services and availability of high-tech information storage and retrieval, paper documentation is still the standard.
Keep Records for Tax Purposes
The IRS has three years to audit your federal income tax returns for any reason, with these exceptions:
- The IRS has six years to collect tax or initiate legal action if 25% or more of gross income is not reported.
- There is no time limit in the case of fraudulent or never-filed returns.
Any documents used to complete or support a tax return should always be readily available. They may be the evidence you need to save yourself at an audit. Canceled checks that correspond to entries on your tax returns should be saved, as should medical bills for three years to substantiate canceled checks. Certain checks and bills, however, can be thrown away at the end of the tax year. For example, weekly and monthly salary statements can be discarded, provided your annual W-2 form reflects the correct information.
The outline below summarizes H&R Block's checklist for keeping records:
Safe Deposit Box
- Automobile title & lien release: Save until sold or traded.
- Credit or installment records: Keep until debt is paid or as needed.
- Will and/or trust documents: Keep indefinitely or as needed.
- Property ownership documents: Keep until property is sold, then keep a copy of the purchase and sale agreements indefinitely.
- Investments: Keep until sold, maturity and/or redemption.
- Important records (copies of things you will need in the event that your house is robbed, damaged, or destroyed.): Inventory of valuable property, including photographs, purchase prices and/or receipts; inventory of bank accounts and other investments; pension records; credit card records, etc.
In File Folders
- Automobile:
Payment book: Keep until car is paid in full.
Repair records, Receipts for parts and record of gasoline purchases: Keep until car is sold or traded.
Car used for business purposes: Keep and store records to substantiate business use with the tax return
Keep purchase and sales agreements for six years after car is sold or traded.
- Credit union/financial records:
Passbook: Keep until account is closed.
Statement, check registers and cancelled checks: Keep for the next three years. Store checks.
Substantiate tax-related deductions with tax return.
- Cash receipts for major purchases:
Keep until item is sold or discarded if the item is included on your
household inventory.
- Current bills, charge slips:
Keep one year for general purposes and indefinitely if used to provide legal
evidence as proof of purchase. Store with tax return if needed to substantiate a tax-deductible item.
- Credit records:
List of credit member numbers, creditors' phone numbers and addresses. Keep until
cards expire or are destroyed.
- Education/employment information:
Personal benefits reports and other information. Keep only as
needed. Pension records from any prior employer should be kept indefinitely.
- Copy of will and/or trust documents:
Keep indefinitely or as needed.
- Guarantees or warranties:
Attach purchase receipts. Annually removed expired warranties and
guarantees. Throw away instruction manuals when item is sold or discarded.
- Housing:
Home improvement receipts, record of land transfer taxes and purchase price, closing costs and selling
costs: For tax purposes, keep all records and receipts until the end of the third year following the year in
which you sold the home.
Termite inspection policy: Keep until the property is sold.
Rental property: Copy of lease or rental agreement and pictures showing move-in condition of rental
property. Keep until you move and claims are settled.
- Insurance:
Policies and other information: Keep list of all policies and related information. Update as necessary.
Car: Record of traffic violations or accidents. Keep for six years after the violations.
Health: Medical history. Update as necessary.
Property: Personal property inventory including original purchase price and photos of each room showing especially valuable or unusual possessions.
- Investments:
Record of mutual fund, stock and bond statements and certificates: Update as necessary for tax purposes.
Transaction slips: Keep until third year after the asset is sold for tax purposes.
- Taxes:
Paycheck stubs: Discard annually after checking against W-2 totals.
Receipts for tax-deductible items and investment statements: Use annually, then store with tax returns.
- Inventory of safe deposit box.
- Loan statements and payment books.
Business Travel Log
Receipt for tolls, taxis, parking fees, gas and maintenance, tips and miscellaneous auto rental and
transportation tickets: Use annually, then store with tax returns.
In Your Share Draft/Check Register
Items such as charitable contributions or miscellaneous expenses (including professional and union dues, tax return preparation costs, financial publication subscriptions, etc.): Use annually and then store with tax returns.
