How Long Should You Keep Personal Finance Papers

by Bill on April 9, 2012

Not keeping track of personal finance records can cost lots of money

Understanding what makes you your personal financial information is important. But equally important is knowing how long you should hang onto personal finance records, including tax information and supporting documentation. I thought I’d give a few tips that might help during the tax season.

In today’s world there is often a huge amount of paper generated for financial transactions. Many times your personal finances are judged by the financial information presented. This includes your tax information. Knowing the documents to keep, and the length of time to keep them, ensures your personal finances are maintained and the IRS requirements for personal finances and tax information are met. This is the best way to avoid costly mistakes and hardship on your end.

Personal Taxes

The IRS requires that you maintain records of personal finances and taxes for a maximum of three years after you file the information. The problem with this is that if the IRS finds they need to go back farther than that to verify information, they can go beyond the three year limit. Because of this possibility accountants often recommend keeping financial information for seven years.

The IRS will only audit you if they believe you are off by greater than 25% according to their own site. Hang onto your pay stubs for a year after the tax year they were part of; and keep them with the corresponding W-2. After the year passes, destroy the stubs but keep the W-2 with the tax filings.


Banking and Investments

Keep receipts of your credit card purchasing until you get the bill showing the charges on them. Keep your banking, investment and retirement statements until the yearly report arrives. Once the yearly reports arrive destroy everything else. Keep the yearly bank statements for seven years in case of an IRS audit. These become the supporting documentation for your taxes.

Utilities

Personal financial information also covers utility payments. Keep your utility bills for a 12 month period. In other words, every month should have the preceding eleven months showing payment. Toss out the oldest bill once the newest one gets paid. You can keep multiple years to track costs and use over time if you are in the same place for awhile.

Your utility bills won’t be needed by the IRS for any tax information. But, if you apply for various government aid you will need the previous three to six months payments to show need. Heating assistance, food stamps and rent assistance are the three biggest of this group.

Housing or Big Ticket Items

Major purchases such as homes, cars, furniture, jewelry or electronics are usually covered by some form of insurance. Because of the insurance, you should keep receipt of every purchase listed on any insurance documents for as long as you own the item. Any payments for repairs or service should be kept with the purchase receipts also. If you have an insurance claim, you will need all of these receipts to prove the value of the item.

Trustees or Guardianship

If you have trustee or guardianship duties you are likely making personal finance decisions over another persons money. With this responsibility you gain charge of their personal financial information and their tax information; this duty extends for the length of their remaining life under your care.

If you find yourself in this position, keep all yearly records for the person you are caring for as you would yourself. This will prove income and expenses. This will also help avoid legal trouble should anyone accuse you of fraud. Keep all records and information until the estate is settled and all of the personal financial information is turned over to the court. Once this occurs, your obligation is complete and any remaining documentation in your possession can be destroyed.

Hopefully that gave you some help with this upcoming tax season and throughout the remainder of the year. Keeping personal finance information is not something to take for granted – although many people (including me at various points in time) can do.

 
William Swan, writer

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