If you're like most people, you have boxes and boxes of old files cluttering your closets. You'd like to clean out but don't know what you need to keep, and for how long. As a daily money manager and Certified Professional Coach, I often get this question from my clients.
I've covered the most common documents below, but when in doubt don't throw it out unless you are sure you can obtain the records electronically from the bank, insurance company, etc.
These recommendations apply to both caregivers and their elderly parents' paperwork.
Tax returns and supporting documents
Anything to do with taxes should be kept for at least seven years. The IRS has three years from your filing date to audit your return if it suspects good faith errors and you have the same amount of time to file an amended return if you find a mistake. However, the IRS has six years to challenge your return if it thinks you underreported your income by 25 percent or more. If you fail to file a return or filed a fraudulent return, there is no limit on when the IRS can come after you. Specific items you should keep in addition to your tax returns themselves include documentation of income, alimony, charitable contributions, mortgage interest, and retirement plan contributions and any other tax deductions taken.
Medical bills and records
Keep all medical bills and supporting documentation such as cancelled checks or credit card statements until you are sure that the bill has been acknowledged as having been paid in full by you and/or your insurance company. If you are deducting unreimbursed medical expenses on your tax return, keep all supporting documentation as discussed above. Remember to keep all health-related bills including dental, eyeglasses or contact lenses, hearing aids, and over-the-counter medications, to name a few.
Retirement plan statements
Keep the quarterly statements until you receive the annual summary and if everything matches up, you can shred the quarterly statements. Keep the annual summaries until you close the account.
If you made an after-tax contribution to an IRA, you will need to keep your records indefinitely to prove that you already paid tax on the money when it is time to make a withdrawal.
You must keep these until you sell the securities covered by them to prove whether you have capital gains or losses for your tax return. If you hold stocks or bonds for many years, you will need to keep the statements. The exception is if the cost basis and date of acquisition is listed on the statements. In this case, you only need to keep the year-end statements to support your tax return.
Keep any checks or statements related to your taxes, business expenses, home improvements, or mortgage payments.
Keep bills until you receive the cancelled check or credit card statement showing that your payment was received. Be sure to keep bills for big purchases like jewelry, furniture, art, appliances, cars, computers, etc. so that you can prove the value of these items to your insurance company in the event they are lost, stolen, or destroyed in a covered disaster such as a fire.
Keep all records documenting the purchase price and the cost of all improvements, as well as records of expenses incurred in selling and buying the property for seven years after you sell it.
Credit card receipts and statements
Keep original receipts until your statements come and then match them up. You can then discard the receipts. Keep the statements for seven years if they document tax—related expenses.
Keep until you receive your annual W-2 form from your employer(s) and make sure the information matches. If it doesn't match, request a corrected W-2 from your employer(s).
Using the above guide, you should be able to clear out the bulk of your saved paperwork and then establish a system for keeping up with things over time. Remember, you can obtain many of these documents in electronic format, or you can scan them and archive them electronically. If the task seems overwhelming, you might want to consider the help of a daily money manager or professional organizer.
Sheri Samotin is a Certified Professional Daily Money Manager, Certified Professional Coach, Natioinal Certified Guardian and founder of LifeBridge Solutions, a one-stop shop for family transition coaching, caregiver coaching, medical billing advocacy, money management, household transition services, and estate administration support.