How Long To Keep Important Papers

Knowing what tax records to keep and how long to keep important papers is one of the most essential decisions you can make. How often have you held on to a document because you "might" need it? Maybe, you know you need it, you just don’t know how long to keep it. You are not alone.

These thoughts are why many of us struggle to purge our papers. Deciding how long to keep certain legal, insurance, financial, tax, ownership and health records is a challenge for three simple reasons.

The only way to solve your dilemma is to explore your personal situation. Even then questions will remain. Many records serve dual purposes.

So here’s an idea. Just decide to keep all your important records for one length of time.

I like 10 years.

  • 10 is easy to store in one or two file drawers.
  • 10 is easy to maintain. You can immediately identify anything over ten years old.
  • 10 is well past the IRS required holding period, even for business owners.
  • It will be much easier to decide the importance of non-tax related records after 10 years.
  • In addition, it’s unlikely there will be legal, tax or insurance issues arising after 10 years.

If 10 seems like too long, pick another number. Like 7 or 3. Ten works best for business owners and families with more complicated health and legal situations.

Here's the logical thinking behind my blasphemous advice.

Generally there are 3 Reasons You “need” to Keep a Record or Document.

Legal Needs - Who knows when life is going to decide to challenge you with some ridiculous accusation. Just be prepared.
Keep evidence records that support ongoing child support, alimony, court ordered actions or ongoing disputes. Disputes could be related to anything where you're attempting to prove your actions or financial investment. While these records may also be related to your taxes, you may wish to retain these indefinitely. Talk to your advisor.

Legally speaking many of the records mentioned below could support your case if they are related to the situation.

Insurance Needs - In the event of an accident or emergency, good records support personal, financial, health and ownership.
Records include policy documents (yes, even expired), as well as evidence records including accident reports and claims, receipts and correspondence. Many health or ownership records needed to support insurance claims are also needed for tax support.

Tax Needs - Uncle Sam makes it your responsibility to supply proof to support tax returns. Keeping good records substantiate your tax deductions.
Tax records are everywhere. Most tax papers will be related to your income, savings and spending. Charitable donations, home improvements, work, and health-related expenses are tax records if you're claiming a related deduction or credit. Learn what records are required to support your deductions.

Tax Recordkeeping - My Hand-Picked List of "Must Read" Important Paper Resources

Pay Close Attention to the 3 Categories Containing Most of Your Support Records.

Wealth - Financial statements, including cash accounts, credit accounts, investment accounts and retirement accounts are tax related. Many experts suggest it's safe to toss (cash and credit) after accounts have been reconciled or after one year. That advice doesn’t fall within my comfort zone. Cash and credit account records support your legal, insurance and tax needs. They are evidence records of spending. If you are not keeping statements, make sure you have access to your online accounts for at least 10 years after the account closes.

The most important record is your checkbook for personal financial independence and tax support.

Wellness - Insurance companies and health care professionals provide valuable services. Unfortunately, there can be a lot of stress involved with the financial responsibilities related to these services.
Health care spending and correspondence may be tax related if you are claiming the deduction. However, families with special needs may also wish to keep these papers as a health record or for filing insurance claims. Remember, insurance payments and reimbursements can be tax related if you are taking the medical deduction.

Protect your wealth. Human error by insurance companies and health care providers is the number one reason to keep solid health care records.

Home - Keeping good records provides the necessary support to settle estates, file for insurance claims or express wishes regarding ownership transfer.
There are tax support records in many of your household papers. Home improvement records should be kept for tax support even after a house is sold. In addition, if you are taking a home office deduction, home utility and home maintenance records may be tax support.

Receipts for large purchases (vehicles and appliances) and maintenance spending are needed to support financial (warranties) and insurance needs. Everyone should have an up to date home inventory. Photos or video is the minimal requirement.

Head spinning? Mine too. So here’s what you need to do.

Know what tax deductions you’re taking and what records are required to support those deductions.

Then just decide to keep all your important support records for 10 years or whatever you are comfortable with.

You can always change you mind later.

This decision will eliminate the biggest paper management obstacle.  "How long did I need to keep this?"

P.S. Vital documents are different. Most vital documents should be kept for a lifetime.

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