Whether you have physical copies of your financial documents or decided to go paperless, it’s important to keep them in a safe place. As these documents begin to build up, it can become overwhelming and messy — but, this doesn’t have to be the case. In this article, we will discuss 8 important financial documents you should keep and for what length of time.
1. Bank Statements
It is important to keep your bank statements for at least three years. Having access to bank statements that date back up to three years old is crucial in the event of an audit by the IRS, allowing you to provide solid evidence of any financial transactions that may have taken place during that period. Bank statements are also useful for tracking any financial transactions you have made, such as payments, deposits, and withdrawals.
Moreover, financial documentation can serve as proof of your financial status when applying for loans or mortgages, substantiating your ability to meet fiscal obligations. Keeping track of your bank statements will also help to ensure that you don’t run into any tax issues.
2. Receipts
It is highly recommended that you retain all receipts for a period of three years, regardless of whether you intend to list any deductions on your tax return or not. This way, if the IRS questions any of your deductions, you can easily provide proof that you are eligible for them. Keeping your receipts organized is key.
You can store them in a file or in an envelope but don’t forget to label them, so you know what each one is for. You may also want to consider taking pictures of your receipts in case they become lost or damaged. Having digital copies ensures that you’ll still have proof of your purchases.
3. Tax Returns
The IRS suggests that you keep your returns for either three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. This is important to remember in order to stay compliant with IRS regulations and to have evidence of your tax filing and payment history.
If any questions arise, or you are ever audited, having your tax returns readily available can save you time and money. Also, the IRS suggests that you should keep records for seven years if you claim a loss from worthless securities or a bad debt deduction.
4. Loan Records
After you celebrate paying off your loans, make sure to keep your records for seven years in case there’s a processing error. Keeping your loan records organized can also be helpful if you’re ever audited. Organize your loan records by creating a filing system within your financial organization, which must consist of important details such as loan terms, payment history, and payoff amounts. Storing these financial documents electronically is also an option, but make sure you back up your files regularly in case of computer failure or damage.
5. Medical Bills
It’s recommended to keep medical bill records for one to three years, depending on your needs. If you ever need to provide proof of any medical information to your insurance company, having the records will be a great help. Additionally, if you’re using medical bills for tax deductions, you should keep the records for three years. Having your medical bill records organized will save you time and energy when it comes to managing your health and finances.
6. Utility Bills
Utility bills are essential for running a home, and it’s important to keep them for at least one year. Keeping them for longer can be beneficial if you want to claim a home office tax deduction. In that case, you should keep them for three years. Depending on your utility provider, you may receive your bills in the mail, via email, or as an online statement. It’s important to choose a method that works best for you and to make sure you pay on time.
7. Paycheck Stubs
If you are an employee and receive a physical paycheck, the stub attached to it will provide the details of your pay. It includes information such as your gross pay, taxes, deductions, and net pay. This is one of the financial documents that is useful for filing taxes and for keeping a record of what you make in each pay period. It is also necessary for getting loans, renting an apartment, and proving income.
Therefore, paycheck stubs should be kept until the end of the year when you receive your W-2. Paycheck stubs can also be accessed online if you have an online account with your employer.
8. Home Improvement Records
It's crucial for homeowners to maintain a record of home improvements for a minimum of three years following the tax return due date, encompassing the income or loss amount of the property when sold. This is especially important if you are looking to sell your home in the future. Keeping proper records of all home improvements will also ensure that you are properly claiming any deductions for your home improvements when filing your taxes. You should make sure to keep any receipts, invoices, or other documents related to any home improvements.
If you prefer to keep these financial documents for longer than the time we suggested, feel free to do so! Although there might be more, it is crucial to maintain their organization to avoid future stress in case you lose them. If there are other financial documents you have that you’re unsure about, consult with a financial advisor.