What Financial Documents Are Most Important to Keep

Keeping track of your finances often requires organizing certain documents. A few of these we know to keep indefinitely, like Social Security cards and birth certificates. Everything else, it seems, has an uncertain expiration date. It's not practical to either save everything or hang onto nothing, so there has to be a better way, right? Fortunately, there are a few standards to abide by when keeping important documents organized.

"Hang onto financial records for only as long as you may need them."

In general, financial records should be kept for about as long as you think you may need them. For example, documents related to any loan you are paying off, such as your mortgage, should probably be kept until you have paid off the entire debt. But it might not be necessary to keep every monthly statement, or multiple copies of records that contain duplicitous information. According to FINRA, a U.S. financial industry regulator, it may be wise to keep loan payment documents on hand indefinitely  to be as safe as possible.

Tax forms and property records

Documents related to taxes have more clearly defined expiration dates. IRS regulations state that a person may be audited within three years if the agency suspects an honest, "good faith error" in past tax returns and other forms. For suspected cases of intentional tax fraud, such as under-reporting your gross income by 25 percent or more, the IRS may go as far as six years back. Therefore, it stands to reason that tax documents don't need to be kept longer than seven years. It's important to note that this includes completed tax returns as well as anything used to prove eligibility for a deduction or credit. FINRA also pointed out that state tax officials may have their own rules for specific provisions at the state level.

Owning a home also invites a trove of documents that must be carefully organized. Anything related to the purchase of your home, or proof of the property's market value, should be kept for as long as you own it. It's also wise to hang onto property records for at least six years after you have sold the home, mainly for tax purposes. Don't forget to include records related to renovations you've completed that most likely increase the value of your home.

Cutting down on paperwork

Keeping tabs on all of these documents for years at a time is no easy task. With a few digital tools, as well as some old-fashioned solutions like secure file cabinets, document management can get a little easier. The Wirecutter suggested investing in a portable document scanner  to help keep tax and financial documents organized all year long. Rather than stashing paper receipts in a bulky folder, they could be scanned and saved on a secure hard drive using a fraction of the physical space. And yes, the IRS does let taxpayers attach scanned records to electronically filed tax returns. If you go the digital route, just ensure your data is backed up in multiple locations and secured with a strong password that you can remember.

The information provided herein is presented for general informational purposes only and the information provided may not represent the views and opinions of Vectra Bank.