Be Careful When Tidying Up Your Documents

Andrew Prentice |

Marie Kondo and her show Tidying Up on Netflix seemed to strike a chord with many people and now everyone is clearing out anything that doesn’t bring them joy. While I am all for simplifying your life, and it feels good when my wife fills the back of our minivan with joyless material to donate, be careful when you start going through your documents.

The easy one that most people know is to keep tax returns for 7 years. Here is a list of additional time limitations listed on the IRS website for various records:

  1. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
  2. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  3. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  4. Keep records indefinitely if you do not file a return.
  5. Keep records indefinitely if you file a fraudulent return.
  6. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Bank, brokerage, investment and insurance statements don’t need to be kept any longer than a year and most likely can be viewed through a client website. Be careful though, because some institutions only allow you to see statements that are in the most recent history and if you want to go back further they may charge you a fee.

You also want to keep any contracts that are currently active. Examples would be: life insurance, disability insurance, long-term care insurance, annuity contracts, loans (receivable and payable) and improvements to your home for tax-basis information. You also want a way to track and document how much you have contributed to your ROTH IRA or a non-deductible IRA, in order to pay the least amount of tax possible when you pull the money out.

There is some paperwork you should keep forever and have secured in a fireproof/waterproof safe or a safety deposit box. Examples would be: wills, trusts, power of attorneys, birth certificate, marriage certificate and death certificate.

While this isn’t an exhaustive list, it should keep most people out of trouble. To reduce the amount of physical storage needed, everything except the documents stored in the safe/safety deposit box can be scanned in and saved electronically. Just make sure you back up that data so you don’t accidentally lose it. Happy tidying!