Document Retention Guidelines

How To Know What Papers To Keep

Most people have more paper than we know what to do with. How do we determine what we need to keep versus what can be pitched? If you haven’t already read my blog posts about File Systems and Paper Storage, I recommend reading those first.

Click Here To Download The Document Retention Chart

The chart above provides guidelines on which financial documents to keep and for how long. Because of differing statutes and regulations at the federal, state and local levels, there is no simple answer to this question. Everyone has specific requirements, and these, along with storage constraints, need to be evaluated when deciding what to keep and what to toss. As with all document retention, consult your tax provider for the final word on what needs to be kept and for how long, and what can be discarded, recycled, or shredded.

In the chart above, retention periods begin at the end of the fiscal year during which the document was created. This date may differ from the date on the document. The retention period for tax return documentation begins on the later of the filing date of the return or its due date with extensions. Again, consult your tax preparer with questions specific to your situation.

The numbers in the chart represent the retention period in years. AD means after disposal of the asset, AT means after termination, and P means that the document should be retained permanently.

Please note that requirements for record retention vary greatly.  To be on the safe side consider keeping your records for the maximum term suggested.  Consult your tax adviser if you have additional questions and for clarity.

Other Items to Consider when deciding what to keep and what to pitch:

  • Bank reconciliations and deposits should be kept for at least four years.  Keeping these items makes it easier in case of an audit.  Most states have a four-year statute over the IRS’s normal three-year requirement, although the time-frame can be longer under certain conditions.
  • With the advent of technology, many individuals and businesses don’t keep ledgers anymore. Because of this it is likely that you will need to retain these e-documents forever if you backup on a regular basis. You’ll also need to maintain a backup file of old data.
  • Keep cancelled checks and credit card statements for at least seven years if they contain a record of tax-deductible items. You don’t want to end up paying several hundred dollars in fees to get this information from banks and credit card companies. 
  • Retain proof of insurance coverage until 2 years after the policy expires. This ensures that you have proof of coverage should someone file a claim after the termination of your policy.
  • It isn’t necessary to save 401(k) statements year after year unless you want to see a running total of how your account has done, but there’s no harm in keeping them. 
  • And finally—stock & mutual fund purchases outside of retirement accounts. Save the original trade tickets showing the purchase amount for these items for at least seven years after selling the security. Since taxes are paid on the difference between the purchase and sale prices, and since the brokerage is generally obligated to report only the sale price, it’s really important to keep the purchase price handy. If you can’t prove what you paid, the IRS sets the purchase price at $0, and you end up paying taxes on the entire sale.

Please keep in mind that everyone’s situation is different and it’s always best to consult with one’s tax professional for the final word on what to keep and for how long.

If you need help with paper management, contact Lisa Mark, C.P.O. to find out if she is a good fit for your organizing or productivity needs.

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