A common question I hear often is "how long should I keep my tax records (paperwork)?" While each person's situation is different, these tips will help you get to a decision on what you can get rid of. Read on to figure out your position.
I would always side with the more conservative number of years when keeping my tax paperwork which was usually seven years. While I would keep them for seven years, I found reducing the unnecessary paperwork that you filed away was helpful around the third year. This task would allow me to fit at least two years in one bin. It would significantly reduce my amount of square footage long-term storage.
How long should I keep tax records?
To help you keep your tax records pile at bay, I created a list of tips to help you to determine what you want to keep.
Make sure you know your tax situation.
When a person gets audited, they are more likely to get reviewed again. So, keeping your paperwork for the 7-year period may be a better choice to make sure you have everything.
Keep backup paperwork that would relate to your exact tax situation.
If you have a rental property or own a small business, keep all your paperwork like receipts, canceled checks, tax returns, payroll or subcontractor paperwork, bank statements, and liability taxes paid reports/cleared checks.
Keep your bank statement the same amount of time as your tax return paperwork.
If you have a bank statement that has lots of charities, mortgage payments, and home improvements on it, you should keep them more for reference than for audits. Check images are usually in statements now, so you don’t need to keep your actual checks if you don’t want to.
Only keep your utility bills until you reviewed your bank statement and the charge cleared.
This step is just for people who do not have a small business or rental property.
Keep your long-term stored paperwork safe.
Find a place where you can save all your documents. Clear plastic bins with tight lids work nicely. If you want, you can place it in a fireproof safe. If you don’t feel it is necessary, just get a fireproof safe only for your long-term paperwork and receipts from items you purchased for your home. This tip will be helpful if you ever need to claim items for your home with your insurance company.
Shred any unwanted tax paperwork and statements.
To protect yourself from identity theft, make sure all papers, even the ones that only have your address on them are shredded and disposed of properly. Using a cross-sectional shredder is best so that no one can read the ink easily. This type of shredder does two different cuts when you feed the paperwork into it. Make sure the papers look like confetti when you are finished.
Don’t forget to keep credit card statements.
Keep your original receipts until you get your statement each month, then shred them if they are all reconciled. If there are any tax-related charges on the statement, keep the statement and receipt for three or seven years.
Keep paycheck stubs for one year or until you receive and verify your pay stuff details.
When you receive your W-2, make sure your last pay stub for the year matches with the W-2. If it does, you can get rid of all the pay stubs. If it doesn't, contact your employer and keep the last pay stub until the error is corrected. Shred all the other pay stubs for that year.
Store all the tax items in one accordion folder each year.
I found that keeping all my business files in one 13-tab accordion folder, allows me to pull them out when I need them without losing anything. If you don’t have a business, you can create an accordion folder that holds all your supporting paperwork.
Here are the tabs we use to create our household's supporting tax paperwork accordion folder.
First, you need one 13-tab accordion folder that has a covered affixed lid. Something like this you can buy on Amazon (affiliate).
How to make a personal tax records supporting paperwork accordion folder?
Then, add these tabs below.
Quicken or QuickBooks Tax Summary – whichever one you use is fine.
The first five income groups can be placed in one tab if you feel you are running out of tabs in your accordion folder.
- Income – W-2, 1099-misc, 1099-R – Add to this section any documentation statement you received from your employer, federal government, or contractors.
- Income – Bank interest – This one is usually not used often. If it applies to your situation, feel free to add it.
- A Income – Distribution – This tab is usually for people who get S.S. or other pension distributions.
- Income – Capital Gains – This section is perfect for the paid out capital gains statements you received.
- A Income – Rental Property income and expenses – If you have rental property, you can split this one into two sections. One section for income, and the second part for the costs for that particular property. If you have several properties, create two sections for each property and add another accordion folder. Accordion folders only have a maximum of 13 tabs.
Deduction – Charitable deduction – cash and donated items – While I know this may all change this year if you still want to track your deductions, add a section for donation.
A Deduction – Medical Deduction – if you have lots of medical payouts, create a section to track them as well.
Deduction – Contribution to a 529 plan for the education fund. In PA, we can deduct some of our 529 contributions, so I added this section to our accordion folder.
Deduction – Real estate taxes paid/ Mortgage interest paid/ Refinanced taxes paid – This section can be combined it’s not necessary to keep them separated.
Have a tab for the tax final returns
Federal Tax return – Have a section just for the copy of your official federal tax return that you sent out.
State Tax return – Same for the state tax return. Create a section that includes a copy of everything you sent to the state.
Local Tax return – If you have a local tax return, create a section with all the paperwork you sent to the local tax agency.
Keep in mind that accordion folders work great for small income tax returns and even people with small businesses. I like to have one for my business and one for our joint filing. These two accordion folders give me a way to review all my business separately from my personal.
Good luck with your paper purging process and setting up your new personal tax return supporting paperwork system. I hope it creates space in your home.
Want more information on when you should discard your papers?
Here are additional sites to help you. While the IRS site may seem very vague, it will give you somewhere to start to determine what you want to do. After reviewing this information, contact your accountant and find out what they suggest.
How long should I keep records? - While this page is intended for self-employed individuals, it is what the IRS uses when you type in "individuals how long should I keep records."
Need more help organizing your tax records?
Visit these recent posts to get even more tips and tricks when setting up a new tax records system.
Well, there you have it. This post is to help you get inspired to rid yourself of tax papers as well as create a new easy-to-manage process for future use. If you have specific questions about discarding your long-term tax records, contact a professional who knows your situation.
Please note these are affiliate links through Amazon and at no additional cost to you, I will earn affiliate fees if you decide to make a purchase.