This past week I spent some time in my closet cleaning out various pieces of clothing and household items that were gathering dust in anticipation of springtime (and Memorial Day sales!). Of course, the closet is the easy task. Next up I plan on cleaning out my office which is littered with old receipts, various pieces of mail, and the inevitable pile of financial statements that have accumulated during the course of the year. If you’re looking to do some spring cleaning yourself, here are a few tips for what to toss, what to keep, and for how long.
Tax Returns: The IRS suggests that you hold on to important documents for at least 3 years, but potentially up to six if you’ve recently undergone some complex changes when it comes to your financial situation (inheriting money, selling or purchasing a home or rental property, becoming self-employed). Luckily, in this day and age, everything can be kept digitally as a back-up. At our house, we maintain files for our tax returns for the last 3 years and purge the furthest year out each year to keep things clean.
Bank Statements: Because most bank statements can be accessed with the click of a button, there’s almost no reason to hold on to paper statements – if you’re even still getting them. While your bank may only make recent statements (usually the last 1-2 years) available to you online, you can always call if you need statements from an older date.
Other Important Documents: Legal documents are the one thing that are harder to track down electronically, particularly if they’re significantly dated. It’s a good idea to keep both a hard copy and a digital copy (somewhere safe and password/lock protected) of things like:
Social Security cards
Wills and Deeds
Significant Financial Transactions: When something happens that has a significant impact on your finances, it’s important to maintain a record of what happened just in case you need to clarify later on. One of the most difficult things to keep track of is cost basis (how much something was worth when you received it) and while laws have recently put the impetus of tracking cost basis on the shoulders of custodial institutions like Charles Schwab and Fidelity, those laws only go back the last several years. When it comes time to sell those securities or a family home you’ve inherited the cost basis becomes a key part of determining whether or not you owe taxes and if so how much, and having the documentation on hand can save you a lot of headache.
"How Long Should I Keep Records." IRS. Feb. 26, 2016. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-long-should-I-keep-records.