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Sorting Out Your Tax Documents: Ditch or Keep?

by | Aug 30, 2017 | Blog | 92 comments

Sorting Out Your Tax Documents: Ditch or Keep?
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Your aunt says to throw it all away after 2 years. Your banker friend says to save everything for 7 years.  

So, what should you do? Are there reasons you should save tax documents forever? 

Use this handy guide to help you determine which tax-related documents to save and which to pitch: 

  1. Save tax returns. Many financial experts recommend never throwing away tax returns. They might come in handy in the future when you need to reflect back to determine the cost basis of prior investment figures, if you wish to apply for loans, or if you want to file for disability insurance.  
    • If you don’t have room to store tax returns, scan them and keep them in computer files. Be sure to back them up, though, in case your computer crashes.  
  2. File stock and mutual fund confirmations for safe-keeping. Because you’ll likely someday sell your stock market purchases, you’ll need the original information about your purchase of those items, such as when you bought them, how much you paid, and how many shares you bought. 
    • As long as you have the stock, you’ll need those confirmations. So save – don’t pitch. 
  3. Throw away monthly statements from all financial institutions if you receive year-end reports. Be careful with this one, though, because some major brokerage firms recently stopped issuing year-end summaries and expect their customers to save monthly reports for tax time. 
  4. Pitch salary paystubs after the year’s end. If you saved paystubs all year, it’s okay to get rid of them after you’re sure your W-2 reflects properly the amount you earned. The only exception here is if, for some reason, you need the final paystub of the year (to claim how much money was deducted from your pay all year for donations to charities.)  
  5. Before you dispose of copies of household bills, ensure you don’t need them. If you have a home office, you’ll likely need your utility bills and other types of receipts to claim the home-office deduction on your tax return. 
    • Electric/gas bills, internet connection fees, homeowners’ insurance, HOA maintenance fees, and others may help you get a hefty tax return if you have a home office.  
  6. Save credit card bills. Although some financial experts recommend pitching them, many reasons to save them exist. For example, these days, credit card companies often insure anything you’ve purchased with the cards. 
  7. Expect exceptions to these rules. If you have room, it’s wise to save any important records. 
    • For instance, in 2010, the government offered the Longtime Home Buyers’ Tax Credit to home purchasers who could furnish proof they’d resided in their previous home for 5 of the prior 8 years. 
    • Sound easy? It wasn’t, as many applied for and didn’t receive this credit. Why? Many homebuyers were unable to prove they’d resided in their home for 5 years to the satisfaction of the Internal Revenue Service (IRS). 
    • One couple that did receive the credit got it because they had saved their monthly utility bills for the home and sent copies with their application for the tax credit. So, saving their utility bills ultimately helped them receive a $6,000 credit from the IRS.  

If you take this information into account, you won’t get caught without a receipt you need or using up precious space to store papers you don’t require.  

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