Open your file cabinets and take a stroll down memory lane. Still got the purchase agreement from the car you bought back in 1996? Bank statements from the Dark Ages, before you switched to digital documents?
Shredders were invented for just such an occasion.
Some things should never be destroyed. Among them are wills, titles, deeds, contracts or paperwork with raised seals, such as birth certificates. Scan these and store them digitally, and put the originals in a safe, fireproof location.
As for tax paperwork, Stacy (Money Talks News founder Stacy Johnson) says you should keep your returns themselves, in case you ever need proof you filed your taxes — though you can digitize your returns and shred the paper versions. It gets more complicated with supporting documents: Many you don’t need, but some you will want to keep. Stacy breaks this down in “How Long Should I Keep My Tax Returns?”
Here is what Stacy says:
How long do you have to keep your tax returns, digital or otherwise?
You need to keep a copy of your tax returns forever, in case you need to prove you filed.
As far as the supporting documents for tax returns, typically, you want to keep them for at least three years after the tax return is filed. That’s because the IRS typically can go back three years to audit returns.
While it may seem that three years is the limit, there are documents you’ll want to have much longer.
For example, I’ve owned my house since 2001. When I sell it, if I have a big profit, I might have to pay taxes on part of the gain. To reduce my taxes, I’ll need to show the money I’ve put into the house. So, I’ve kept all the receipts for improvements, some dating back to the first year I owned the house.
I’ll have to continue holding that paperwork for another three years after I sell the house and report the sale on my tax return.
There are other exceptions to the three-year rule for tax returns and supporting documents.
If you underreport your income by 25%, the statute of limitations is doubled to six years. If you filed a fraudulent return, the IRS can go back to the days the dinosaurs roamed the Earth.
But if you’re a typical taxpayer reporting your income and doing things the right way, three years is your answer.
Whatever your situation, though, digitize your documents and store them cheaply and safely in the cloud. Then, you won’t have to worry about them burning up, getting lost, getting eaten by mice or anything else. And you won’t have to worry about how long to keep stuff.
Note: Some paperwork should be kept updated, especially if it has to do with estate planning. For example, things may have changed — an inheritance from your parents, or grandchildren being born — since you wrote your will 10 years ago. You’ll find useful tips in “8 Documents That Are Essential to Planning Your Estate.”
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Article By Donna Freedman for Money Talks News©