Are You Drowning in Paper? 3 Practical Tips for What to Keep and How Long

Do you ever feel as though paper multiplies faster than bunnies?  Everyday new paper comes into the house via mail, children's backpacks, work assignments, etc.  Paper has a way of taking on a life of its own and usurping our living and working spaces so periodic shredding purges are important to keep up with the deluge.  Monthly clear outs are recommended but if that is unreasonable, try to keep a 6-12 month schedule.  The longer you wait, the more you will have to contend with.

Here are a few tips to keep your personal paper piles at bay and your sanity intact.  Business records are subject to much stricter guidelines.  This blog addresses personal papers only.

As a caveat, I MUST preface this by saying I am not a CPA or attorney, so please consult with your own advisors before disposing of any paperwork for which you are uncertain.

Where to Begin?

To make this simple, let's break the papers down into 3 categories: Must keep, should keep, keep if desired or recycle. 

Why is it necessary to keep papers?  You might need them for tax audits (see below for further clarification), prove citizenship, insurance documentation, legal proceedings, employment records, warranties, etc.

1.  "Must" keep

Indefinitely:

These essential items should be kept indefinitely in a safety deposit box or fireproof, non-portable home safe:

  • Birth certificates (including adoption papers)
  • Marriage (including divorce decrees & prenuptial agreements)
  • Retirement & pension documents
  • Death certificates
  • Social security cards
  • Military discharge papers
  • Life insurance policy
  • Estate planning (wills & trusts)
  • Personal inventory:  A household inventory of appliances, jewelry, artwork, collectibles and keepsakes, inheritances and safe deposit contents is advisable.  Adding and subtracting as changes are made is much easier than starting from scratch.   This is handy for moves, insurance claims, estate planning, etc.
  • Legal notifications, documents, and correspondence

Specified Time:

Investment ConfirmationsHold them for the life of the investment and as proof of cost basis and sales transactions including holding duration.  Transactions information listed on annual statements can serve as an alternative if provided.

Loan documents.  Keep until the the loan is paid off and it is advisable to retain them for another year or two afterward unless tax requirements specify longer.  Be sure to clarify with your CPA.

Property and Auto Titles.  As long as you own the property or vehicle, retain any pertinent ownership documentation.  Check with your CPA for recommendations on the duration of sale transaction documents particularly for home sales.

passport.jpg

Passports.  Unless you are saving expired passports as a memento of world travels, there is no need to retain them.  Current passports can be submitted as proof of legal citizenship when applying for renewal, so hold onto those.  All passports, current and expired should you choose to keep the latter, should be kept in a safe place as you do not want to risk theft.  Be sure to shred expired passports if you no longer wish to keep them.  For special circumstance situations, visit:  passport-renewal.com/keep-old-passport

Driver's License.  Of course your driver's license should be retained as long as you wish to drive.  Let's say you or a relative is no longer fit to drive, the license can still be used as a means of identification.  However, if someone is no longer fit to drive and a license is not appropriate, the Department of Motor Vehicles can issue a non-driver ID card.  Check with your local DMV for application requirements and price.

Tax Records.  Visit IRS.gov for more in depth records retention information. 

According to the Internal Revenue Service (IRS):

The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.

The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. The information below reflects the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.

Period of Limitations that apply to income tax returns

  1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.

  2. 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.

  3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.

  4. 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.

  5. Keep records indefinitely if you do not file a return.

  6. Keep records indefinitely if you file a fraudulent return.

  7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

What should I do with my records for non-tax purposes? 

When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.

2.  "Should" keep or at least until a specified time

File the following documents in labeled file folders by category.  Color-coding the folders expedites pinpointing the data you need.  Download or scan paper copies onto your hard drive or the Cloud for paperless retention.

Banking and Credit Card Receipts.  Keep these until you reconcile your bank statement or credit card bill.

Utility Bills.  Some people choose to save these until the bills are paid.  Others like to compare usage against the same month in prior years.  From personal experience, if you recently moved, schools frequently request utility bills as proof of residence when enrolling a child.

Medical Bills.  Hold onto medical bills until all insurance claims have been reconciled. 

Monthly Financial Statements:  Transaction confirmations are covered above, but the monthly statements after reconciled with your financial software program should be kept until the end of the tax year and possibly up to 3 years depending upon your comfort level and advice of your tax advisor.  Most of these statements are available for electronic download.  Create a yearly file for each brokerage or a general financial statement file for each month and download the statements into these files for easy reference during tax time.

Home Renovation/Repair Documents:  Keep these for the life of the property.  Proof of repairs might be needed for home sale to accompany any damage disclosures.  The records are also handy reference for reengaging contractors for future projects or as reminders which contractors to avoid.

Warranties and Product Instructions:  Keep these for the life of the product.

Inheritance Documents.  If you are gifted an inheritance, keep documents identifying you as the sole heir of the gift. 

“Every state is different [but] the more you have to show, the better your claim,” says Lisa C. Decker, a certified divorce financial analyst and chief executive of the Atlanta-based consultancy Divorce Money Matters. “If you do get anything in writing, put it in a safe place—with your attorney, your financial adviser, a relative or in a safe-deposit box. Nobody wants to think in 20 to 30 years they’ll need this stuff but it can happen,” she says.1

3.  Keep if Desired or Recycle

All else is up to your discretion if you wish to maintain that includes precious works of art by your children, recipes passed through the generations, newspaper articles, correspondence, professional publications and assignments, etc.  Be mindful that the more collect, the less space you have.  

Check with your trash hauler to ensure that any paper you wish to dispose is appropriate for your recycling bin if you are uncertain.

Time to Face the Music

Hopefully these tips will guide your paper purging efforts.  Set aside some time to ensure that your important papers are stored securely, everyday papers are filed categorically, and clear out is methodical.

Still need an extra hand with your paper piles? 

Contact ThePracticalSort.com to get sorted right away.

 

1 wsj.com/articles/how-to-keep-an-inheritance-from-going-to-a-spouse-during-divorce-1415569539