In today’s world of financial transactions there is often a huge amount of paper generated. Many times personal finances are judged by the personal financial information available. This includes tax information. Knowing which documents to keep, and for how long, will help ensure not only your personal finances are maintained but that the IRS requirements for personal finances and tax information is also met. This is the best way to avoid costly mistakes and hardship.
The IRS requirements for personal finances and taxes is that you maintain records for up to three years after the initial date of filing. The problem with this is that if the IRS finds that they need to go back farther than that to verify information, they can ask for tax information past three years. For this reason, accountants often recommend keeping personal financial information for up to seven years. The IRS will only do this if they believe your figures are off by 25% or more. You should keep pay stubs for a year after the tax year they are part of, along with the W-2. After one year, destroy the stubs but keep the W-2 and tax filings.
Banking and Investments
Credit card receipts should be kept until you get the bill which shows the charge. Banking, retirement and investment statements should be kept until the yearly report statements arrive. Then destroy everything but the yearly statements. Keep the yearly statements for up to seven years. If the IRS does an audit, these are your supporting documentation to your tax filing.
Utility payments are also part of your personal financial information. Keep these for up to a year to ensure proper credit of your account. You can keep these over multiple years so you can observe changes in utility cost through comparison. Utility bills are not required for tax information. If you are applying for any type of state or federal aid, they will want to see up to six months of utility payments; this is especially true for heating assistance programs.
Housing or Big Ticket Items
Any major purchase, such as homes, cars, furniture, or jewelry are usually covered by some form of insurance. Because of this, you should keep all purchase records of any items listed in any insurance documents for as long as you own the item. Payments for repair or service should also be kept for as long as you own the item. In case of an insurance claim, the provider will ask for proof of the items value which will be shown in these records.
Trustees or Guardianship
If you are someone’s guardian or trustee, you are most likely making decisions about their personal finances. Because of this you are also in charge of their personal financial information and tax information for as long as they are alive and under your care. You should consider keeping all yearly records of the transactions listed above as proof of income or expense. This will also help you avoid legal trouble should anyone else accuse you of fraud. Keep all these records until the estate is settled and all personal financial information is handed over to the court. Once the personal finances in an estate have been settled, your obligation is complete and all personal financial and tax information still in your possession can be discarded.
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