Save More Taxes’  Tax and Financial Record keeping Rules of Thumb

Logo of the Internal Revenue Service

Logo of the Internal Revenue Service (Photo credit: Wikipedia)

All of this conversation about IRS correspondence (and the fact that it is that spring-cleaning time of year!) is a good reminder to consider how long you should be keeping your records.

Even in the days of cloud-document storage, it’s important to have hard copies lying around — in a safe place, of course. If you don’t have a full safe, these are the sort of documents for which you may want to invest in a fire safe, at least.

But here is what you should consider for how long to keep them…

Taxes: Seven years
Howard’s Reasons Why:

There are three, actually:
1) The IRS has three years from your filing date to audit your return if it suspects good-faith errors.
2)  The three-year deadline also applies if you’d like to make some sort of amendment because you discover a mistake in your return and can claim a refund.
3)  The IRS has six years to challenge your return if it thinks you under-reported your gross income.

All this adds up to keeping that info for seven years. Beyond that, there’s no reason–except for posterity.

IRA contribution records: Permanently
Howard’s Reasons Why:

You’ll need to be able to prove that you already paid tax on this money when the time comes to withdraw.

Bank records: Usually just one year
Howard’s Reasons Why:

Those related to your taxes, business expenses, home improvements and mortgage payments will obviously need to be included for next year’s taxes. But unless there is some sort of emotional or posterity reason, get rid of everything after one year.

Brokerage statements: Until you sell
Howard’s Reasons Why:

To prove whether or not you have a capital gain or loss for tax purposes; after this point, shred it.

Household Bills: From one year to permanently
Howard’s Reasons Why:

When the canceled check from a paid bill has been returned, you can shred the bill with a clear conscience. However, bills for big purchases — such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. — should be kept in an insurance file for proof of their value in the event of loss or damage.

Credit card receipts and statements: 45 days/Seven years
Howard’s Reasons Why:

Some families don’t even bother to match up their statements, but if you do so, shred the receipts once you’ve verified everything. There’s no reason to keep everyday receipts beyond this point. For tax-related purchases, you need only keep the statements for seven years–after that, shred it, baby!

Paycheck stubs: One year
Howard’s Reasons Why:

This is to verify that when you receive your annual W-2 form from your employer, the information from your stubs match. If so, shred all of the stubs…if not, request a corrected form, known as a W-2c. After that’s been handled–shred.

House/condominium records: Six years/permanently
Howard’s Reasons Why:

You’ll want to keep all records documenting the purchase price and the cost of permanent improvements — such as remodeling, additions and installations as well as records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for six years after you sell your home.

Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. Therefore, you lower your capital gains tax when you sell your house.

Now that you know what to save, how about getting some help on saving more taxes. Get the free report that will help you to save taxes. Click on the tap on the top right and you will get it immediately.  Take charge of your taxes now for 2013!

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