If your file cabinets are overflowing with old statements and records, you are not alone. Knowing what you should retain and what you can shred is a common question. While there will always be exceptions, there are some general guidelines to help you determine what should be retained and what can be destroyed.
In general, things tend to be redundant. Once you get year-end reports, it's a great time to throw away your monthly statements. Compare the original monthly statements with the year-end records to make sure they are accurate.
You can get rid of bank deposit slips once you've reconciled your statement. You need to keep the statement if you are paying bills online—and especially if any of those bills are going go toward tax deductions. A lot of people now pay their bills online, and your bank statement is really the only record of those online transactions. This is also a good time to review your statements for errors—especially unusual fees. You can throw them out once you've reviewed them. But if your bank statements become part of your supporting documents on your taxes, keep them for at least three years.
ATM receipts are not that big a deal. You can toss ATM receipts after your bank statement arrives and you've made sure everything matches up.
It's a good idea to keep your tax returns for at least seven years, but you can generally toss your supporting documents three years after you filed your taxes. You're usually safe from being audited after that time, unless you forgot to report a big chunk of your income. If you have any self-employment income, keep the records for at least six years.
Keep records showing what you originally paid for mutual funds and stocks until you sell them and report the gain or loss on your taxes. If you made a nondeductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw. Also, hold onto your year-end statements showing how much you received in dividends or capital-gains distributions, so you won't end up paying taxes on them twice. You can toss your monthly statements if everything matches up with your year-end report.
Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then toss the quarterlies. Keep the annual summaries until you retire or close the account.
Since most homeowners can now keep their home-sale profits tax-free, they don't generally think to keep home improvement records anymore. But it's still useful to hold onto the receipts, because you could end up paying a tax bill when you sell your home if you have lived in it for less than two years, if you end up renting out part of it, or if you end up with more than $250,000 in profit if single or $500,000 if married. All home improvements that add value to your home (not just regular repairs) can lower your tax bill. The information can also help document the work you've put into the house when you go to sell it. If you make big home improvements that add to the value to the house, you should keep them for as long you own the house.
Throw credit card receipts away if they have appeared on the credit card statement, after making sure they match your statement. But also, before throwing them away, think carefully if they are going to be included as a business expense.
Paycheck stubs should be kept until you receive your end-of-year tax statements. When you receive your annual W-2 form from your employer, make sure the information on your stubs matches. If it does, you can toss the stubs. If it doesn't, you should demand a corrected form, known as a W-2c.
You'll want to hold savings bonds until they mature, but it's best to convert them to electronic bonds at the U.S. Treasury. Otherwise, keep them in a safe-deposit box and have a list of serial numbers at home.
But, there are certain documents you should never throw away: birth certificates, death certificates, marriage licenses, military discharge papers, loan discharge notices and Social Security cards, to name a few.
When clearing out your clutter and getting rid of documents, it is a good idea to invest in a shredder. Trash can be very valuable to thieves, especially papers that have credit card numbers and Social Security numbers on them.
This article is provided by James E. Elvord, AWM, a Financial Advisor at RBC Wealth Management in Chicago, and was prepared by or in cooperation with RBC Wealth Management. The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management does not provide tax or legal advice.
RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC
James E. Elvord, AWM, Financial Advisor, RBC Wealth Mgmt., 312-559-1738 or 800-683-3246, james.elvord@rbc.com .
