Financial Records

Most people are lost when it comes to figuring out just how long they need to hold on to their mountains of financial records. This article will help answer those questions.

Financial records really fall into two categories—tax-related and non-tax related—keep that in mind as you clean out your file cabinet. If any of the items you're thinking about throwing away are tax-related (items that were used in calculating your tax return) you need to hold on to them for as long as you hold on to your tax records. That said, here are some general guidelines:

Tax records. In most cases, you can toss returns and supporting records after three years. If you’re self-employed, if you have supplementary sources of income, or if you misreported your income by more than 25 percent in any year, keep your records for six years.

Bank records. ATM receipts can be tossed once you’ve confirmed that they’re accurately reported on your statement. Save canceled checks and statements for seven years.

Investments. Investment statements are important to have when you sell shares—at that point you'll need to document how much you paid for the shares (called your basis) along with any dividends and capital-gain distributions you reinvested. So, you should keep confirmation statements from any purchases and the most recent account statement along with year-end cumulative reports. Also retain the most recent copy of the prospectus for any mutual funds you hold.

Home improvement records. These days most homeowners can keep profits from the sale of a home tax-free. You only need to keep receipts if you live in your home for less than two years or you earn a profit of more than $250,000 ($500,000 if married/filing jointly). Many prospective homebuyers, however, like to see receipts from home improvements, so you may just want to keep them if selling is in your future.

Credit card and utility bills. You can throw these away as soon as your payment is credited on the next month’s bill.

Business owners should hold on to accounting ledgers, check registers, and employment contracts for at least ten years.

If you're missing any important documents, call the provider for a replacement. If you're missing something we provide, please call us and we'll be happy to help you out.

My hope is that this information will enable you to eliminate some of the clutter that comes as a by-product of living in the information age.