Don't let paper hoarding happen to you
What paperwork do I need to keep, and for how long?
Do you have bank statements from banks that no longer exist? Receipts from a trip to Acapulco that definitely wasn’t business related? And stacks of product manuals that include your first toaster oven? It’s great that you’re so dedicated to holding onto important papers. But it also might be time to let go of some of it.
It’s hard to know how long to keep documents related to your finances. Maybe you have a year’s worth of receipts in a shoebox. But if you’re not careful, 1 shoebox turns into 2—then 3 and 4. Next, excessive paper takes over your home office, your guest room and it’s only a matter of time before it takes over the master bedroom. Don’t let “paper hoarding” happen to you.
Some records are forever
First, some good news: Some of the things you’ve been holding onto since the first Bush administration do, in fact, need to be kept indefinitely. In general, you want to keep physical copies of anything related to state or federal matters, including certifications, licenses, deeds, marriage licenses, divorce certificates, birth certificates, death certificates, wills, adoption papers or records of paid mortgages.1 Why keep these forever? Because if you ever need to replace them, you will have to jump through bureaucratic hoops, wasting a little money and a lot of precious time.
The 7-year ditch
If you’re unsure how long to keep paperwork, you likely have a box full of tax returns from the glory days of NBC’s “Must See” Thursday nights. But does anyone really know how long to save tax returns? Here it is, straight from the IRS: The agency says you should keep records for 3 years from the date you filed or the due date of your return (whichever is later). Why 3 years? After that, the statute of limitations for an IRS audit expires, meaning they won’t audit you unless you failed to claim a source of income or are suspected of intentionally filing a false return.
However, most experts agree you should save tax returns up to 7 years. You should also hold onto important supporting documents for 7 years, including 1099s, W-2s and other documents that prove your income and expenses. When you’re ready to toss your tax documents for good, it’s a good idea to shred anything with personal or financial information.
It’s time to let go
Month after month, pay stubs and bank statements arrive in your mailbox, raising that nagging question: “What paperwork do I need to keep?” Although you may be tempted to keep them longer, you only need these for a year.2 (Again, keep annual statements related to taxes, like 1099 forms, for 7 years.) Apply the same standard if you use a brokerage firm.
Save trees and attic space
If you tend to fall behind on managing paper statements, consider going paperless instead. Most financial companies have the option for online delivery in the preferences section of their website, and you can download and save PDF statements to your hard drive or online storage. Not only will it save you space in your file cabinet, the files will be searchable, making it easier to find an old statement or tax form when you need to. This can be especially useful to study your checking and savings accounts for spending trends and other budgeting exercises.
Even if you’re not ready to go entirely paperless, but are ready to learn how to organize important papers more efficiently, you can still save space by converting those paper files to digital ones. For small documents, consider an app-based scanner like Scanbot. For larger documents like tax returns, find a local printing center, like FedEx Office, which should be able to handle a larger scan. Store the files on your computer, an external hard-drive, a cloud-storage service like Google Drive or even all 3.
The digital revolution has a lot of perks. One of the biggest is the ability to toss paper with impunity, knowing that you can digitally retrieve much of what you dispose of. With a little planning for what papers to keep and what to throw away, you can start cleaning out those overflowing file cabinets and relish in your newfound space.