How Long to Keep Financial Records
It can be tricky to figure out how long to keep financial records, because the length of time you need to have a document on hand varies according to its contents. For example, you need to save tax documents for several years, but it's often fine to discard routine utility bills shortly after you've paid them.
A good rule of thumb is that documents you might need later for legal or tax purposes should be kept on file.
Financial records you need to save long term
Your tax returns and any documents that support the information in your returns, like proof of charitable contributions or medical expenses, need to be available to you in case you're audited. The IRS recommends that taxpayers keep tax records for 3 to 7 years, depending on their situation. However, there's no limit on when the IRS can ask you for documentation if it believes you've filed a fraudulent return. If you're worried about this worst-case scenario, it may make sense to hold on to your tax records for longer just to be on the safe side.
Records relating to investments or property, like stocks or a house, also need to be saved long term. You should keep these records as long as you own the securities or property, as they may be needed for insurance, as well as to calculate capital gains and other tax considerations when you sell. Even after selling, you should save investment or property records for at least 3 years as documentation for your taxes and to protect yourself against any dispute about the sale.
Don't throw out documents regarding significant life events, like a divorce or an inheritance.
And if you have a business, you should hold on to its legally pertinent records well into the future. That includes documents like articles of incorporation, tax returns and payroll records.
Records it's OK to get rid of
There are some kinds of records you won't likely need several years from now. For example, pay stubs only need to be kept to ensure your W-2 form for that year is accurate. But once information is verified, you're free to dispose of your pay stubs.
You can generally shred most ATM receipts, retail receipts, credit card statements, bank statements and bills—unless you need a specific record to insure a product or to serve as documentation for your taxes. First, though, you should hold on to these types of documents for a few weeks so you can use them to balance your accounts and check that payment goes through without a hitch.
Financial records electronically versus on paper
There are advantages to both electronic and hard copies of financial records. Electronic copies save space, make it easy to email or print copies when you need them and can be backed up to the cloud.
On the other hand, if you already have paper documents, it may be less work to keep them in a physical file cabinet than to scan everything. You don't have to pay for digital storage this way, and your records aren't vulnerable to hacking. You'll still need to keep them physically secure, though.
Deciding how long to keep financial records
Save it or shred it? If you're not sure whether you need to hold on to a financial document, ask yourself these questions.
- Is this information also found in another document you have on hand? If so, check that the two documents match. Assuming there are no discrepancies, you're usually free to discard a document that's a duplicate or that contains less information than a more comprehensive record.
- Is this record relevant to your taxes? Tax returns and documents that back up the information in your return, such as proof of deductions, need to be kept on file until you're no longer at risk of being audited.
- Does this document pertain to investments or property? If it does, you should plan to keep it as long as you own the property and for another 3 years afterward.
- Is this record related to a business I own? Records documenting ownership of your business, taxes paid by your business, and its employment and hiring activities all need to be maintained long term.
If you have difficulty keeping track of your financial records, it's wise to explore digital banking and all it has to offer. Digital banking makes your bank statements available in one place, allowing you to organize your financial records and furthermore streamline your recordkeeping.
A few financial insights for your life
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.