Paperwork - What to Keep and What to Shred

During tax season, I had a client come into my office with a mountain of paperwork. I knew that her taxes are pretty simple, so I was confused as to why this would be the case. She looked at me and said, “This is everything for the whole year. How much of this do I need to keep?”

It’s a perfectly reasonable question, and for most of us the answer is: not as much as you do.

Many of us have a tendency to hold on to most of the paperwork that anyone ever gives us, thinking that someday we might need it for one reason or another. Though we know to recycle our junk mail and that we don’t need old newspapers, often times there are forms or receipts that are provided that we’re not sure about, so we hang on to it just in case. Here’s a quick rundown of a few items you should hold onto and for how long, plus a few that it’s alright to eliminate from your file drawer.

Keep These:

Receipts and invoices for medical expenses

How long: 7 years

A lot of medical expenses are tax-deductible, especially if you paid for them out of your own pocket. Even your prescriptions can likely be written off. Keep track of all medical and dental related expenses, and jot a note on the receipts that indicates whether you paid for them yourself, insurance covered them, or you used a flex-spending account or Health Savings account to cover the costs. If you wrote these items off on your taxes, you’ll want to keep the receipts and invoices with your tax returns for 7 years.

Long story short: If a doctor prescribed it or charged you for it, keep the receipt. 

Pay-stubs

How long: 1 year

First, you should check your paystubs to make sure that everything looks correct each pay period. I can’t believe how many people I encounter that don’t do this. Make sure that you’re getting the right number of hours, that you’re being paid at the correct rate, and that the correct withholding is being taken out of your check.

Come tax time, compare your paystubs with the tax documents that you receive such as W-2s and retirement account statements. If everything matches up, you can go ahead and shred those paystubs.

Long story short: Take a few minutes to make sure you're being paid correctly, and keep the pay-stubs until tax time. 

Vehicle maintenance records

How long: As long as you have the vehicle

Having proof that you did the oil changes and scheduled maintenance on your car (especially if it was on time, every time) can really help you out when it comes time to trade your car in or sell it.

Not-so-Long story short: Nobody likes a lemon, so keep the proof that your car isn't one. 

Tax Returns and Supporting Documents

How Long: 7 years

Some people will tell you that you only need to keep tax returns for 3 year, but I disagree because the IRS can go back as far as 7 for audits if they believe that you have dramatically understated your income. Since they don’t take up too much space, I would recommend keeping them for the full 7 years.

This also means that you should keep any documentation that was used to prepare your tax returns for both income and deductions. Income documents can include W-2s, 1099s and K-1s. Deduction information may be in the form of receipts, statements for mortgage or student loan interest, child care statements or other documents that support items that you deducted. Make sure to hold on to absolutely all of these.

Long story short: You'll be much happier if you have these documents should the IRS ever ask to see them. 

Evidence for Pending Litigation

How Long: Until it’s over (or longer)

We've all seen that episode of Judge Judy where the plaintiff is suing for $XXX but doesn't have any documentation to correspond with their claim. Don’t be that guy.

If you are suing someone, or you are being sued, make sure to keep all of your documentation related to the lawsuit as organized as possible.

Long story short: If there is a pending investigation or legal matter, keep all related documents until everything is completely settled. If you have questions, ask a lawyer.  

Records Relating to Properties You No Longer Own

How Long: 7 years

When you sold your property, there were aspects of the sale that should have been included in your taxes for calculating capital gains. Therefore, keep those documents (mortgage statements, property tax statements, closing documents) as long as you would any other tax documents.

However, there are quite a few documents from that old property that you don’t need anymore. There’s no need to hang on to the utility bills that you paid or insurance policies that you no longer have.

Long story short: Same rules as tax returns. 

Marriage Licenses, Birth/Death Certificates, Wills, Social Security Cards

How Long: Permanently

In case you didn’t know, you’ll need these things on an ongoing basis, forever. Don’t get rid of them, and keep them somewhere very safe and secure such as a safe deposit box or a fire-safe in your home.

Long story short: If you needed me to tell you not to get rid of these... we might have bigger problems. 

Ditch These:

IMPORTANT: Make sure you shred anything that has your name, address, phone number, social security number or bank account information on it.

Veterinary bills and pet related receipts:

Unless you’re a farmer or are in a trade where you make money off of your animals, chances are you don’t need to hang on to all the receipts for your dog’s prescriptions, food, toys and check-ups. As I stated above, if you’re suing someone over these vet bills (or if there is any pending investigation or litigation in relation to these bills), you’ll want to hang on to them. Otherwise, don’t bother.

Long story short: Nobody cares how much you spent on Fluffy's root canal. 

Expired credit cards:

I can’t think of any reason why you would need these. Shred them.

Long story short: Expired credit cards = shredder fodder. 

Expired Warranties:

Raise your hand if you throw warranty information in a drawer and forget about it forever. Yeah, me too.

Here’s a tip on this one: When you purchase an item that comes with a warranty, before you file that information away, tape a bright colored note on it where you have written both the date that you purchased the item and the date that the warranty expires. Once a year, go through your files and get rid of the ones that are expired.

Long story short: Expired anything is pretty much shredder fodder. 

Telephone books and newspapers:

Chances are, if you’re reading this right now, you don’t even use a phone book. You don’t need to keep them around if you’re not using them, and you might even consider calling the company and opting out of delivery to try and save some trees.

Long story short: Even your Grandma knows how to Google.