Which Tax Documents & Financial Records Should You Keep?

in Financial Planning by

If you’re like many Americans, you may be breathing a sigh of relief now that “tax day” has come and gone. You may also be wondering how long you need to hold on to the tax records and documents you accumulated during the preparation of your income tax return this year, as well as where and how you should store them.

It’s critical to have a system in place for retaining and storing all of your tax records and documents, such as copies of your returns, W-2 and 1099 forms, and bank and investment account statements. If your tax return is ever audited by the IRS, you may need these forms — and you don’t want to have to turn your house upside down looking for them.

Timelines for Tax Refunds, Credits and Audits

In most instances, you have up to three years to file a claim for a tax refund or tax credit. Also, the IRS generally has up to three years from the date you file your return to decide if they want to conduct an audit. As a general rule, therefore, you should hold onto your tax returns and related documents for at least three years from the date you file the return.

Sometimes, though, the IRS has longer than three years to decide to conduct an audit. For example:

  • If you write off bad debt or investment losses, the IRS can conduct an audit up to seven years after you file.
  • If your income is underreported by more than 25%, the IRS can conduct an audit up to six years after you file.
  • If the IRS believes that you may have committed tax fraud, they can conduct an audit at any time, no matter how many years have passed since you filed your return.

In order to play it safe, you should save tax documents and records for at least seven years after you file. These records usually include the following:

  • The tax returns themselves, including all schedules
  • W-2, 1099 and K-1 forms
  • Forms 5498 and 8606 substantiating deductible and nondeductible IRA contributions
  • Investment, brokerage and bank account statements
  • Retirement account statements, such as 401(k)s and IRAs
  • Charitable donation statements and receipts
  • Property tax assessments
  • Statements substantiating how much alimony you received or paid

Retention of Other Important Documents

In addition to tax records, there are a number of other important financial documents that should be kept and stored for certain periods of time. These may include the following:

  • Canceled checks, checking account statements, and credit card statements — Store these safely at home for one year and then shred them.
  • Loan documents — Store these safely at home until the loan is repaid and then shred them.
  • Loan discharge notices — Store these in a secure online vault indefinitely.
  • Insurance policies (annually renewed) — Store these safely at home and then shred them after the renewal.
  • Term life insurance policies — Store these in a secure online vault and then delete them after the term expires.
  • Permanent life insurance policies — Store these in a secure online vault indefinitely.
  • Savings bonds — Convert paper bonds to electronic and store the serial numbers in a secure online vault until the bond matures.
  • Stock certificates — Store these with your broker until the stock positions are sold.
  • Birth and death certificates, marriage licenses and Social Security cards — Store paper documents in a safe deposit box and electronic versions in a secure online vault indefinitely.
  • Last will and testament, living will and healthcare power of attorney — Store these indefinitely, either safely at home or in a secure online vault.
  • Annual Social Security statements — Store these safely at home until you receive a new one and then shred them.

Safe and Convenient Document Storage

So now that you know what documents and records to keep and how long to keep them, the question is: Where should you store these records?

Important financial documents should be stored somewhere that’s both safe and convenient so you can get to them quickly if you need them. Physical documents should generally be stored in a fireproof safe or bank safe deposit box.

Our Take

Keep these guidelines in mind as you sort through all of your tax and other financial records this month. Doing so can help you stay more organized — and also help you be prepared if you’re ever faced with an IRS audit.

Need some help with tracking where you keep your documents and contacts? Download our free Financial Life Organizer to record important information on the documents that are important in your life.

Download Financial Life Organizer

The following two tabs change content below.
Amin Dabit, CFP®

Amin Dabit, CFP®

Amin Dabit is the Director of Advisor Services with Personal Capital. Along with the EVP of Advisory, Amin helps lead Personal Capital’s financial planning experience and advice. Amin brings over a dozen years of experience in private wealth management and financial planning. Amin works with the advisory team to identify and establish strategies for reaching clients' financial goals by providing comprehensive, customized financial advice designed to improve their financial lives.

One Response

  1. James Toner

    I enjoy the straight forward, concise, well organized structure.

    Reply

Leave a Reply

Your email address will not be published.

Disclaimer. This Website may contain links to third-party websites. These links are provided solely as a convenience to you and does not imply an affiliation, sponsorship, endorsement, approval, investigation, verification, or monitoring by PCAC of the contents on such third-party websites. Please be advised that PCAC is not responsible for the content of any website owned by a third party.