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Ever wondered how long to keep financial records? Or how long should you keep bank statements? It's tough to know what is unnecessary clutter and what's important with paperwork, which is why we've created this guide for financial record keeping.
These tips will help you get everything in order. Keep in mind that if you don't feel comfortable throwing something out, you should definitely keep it!
Financial records to keep permanently / forever
When you're wondering how long to keep financial records, there are documents that you will need to keep forever “just in case” they are needed. These are important documents, and there are varied reasons why you could need them. However, some others you might rarely need.
Good record-keeping regardless of usage is still of utmost importance. It’s also important to tell your loved ones where you keep these documents in case you are incapacitated or precede them in death.
Importance of keeping these records
These personal documents are important to hold onto when deciding how long to keep financial records, since they provide proof of specific events occurring or when property exchanges occur. They also include your personal information, so it's important to keep them somewhere safe.
Most of these documents are also filed in the register or recorder of deeds office within the county the property is located or where the event occurred. Keeping these records is vital especially when there were errors in filing or no records were filed at all.
The documents that you need to file with the local registrar may also be available online. Some, such as vital records, may only be available for request in person from an authorized individual.
Birth certificates / Adoption paperwork
Things like birth records and adoption papers are important to keep forever. Usually needed for jobs, enrolling in school, obtaining a driver’s license, benefits, insurance additions, etc.
Death Certificates
Usually needed for closing, canceling, and transferring accounts. Also needed to fulfill life insurance policies, pensions, death benefits, etc. This is one of the documents you'll need to get shortly after someone dies.
Marriage Certificates
Remember this is different than a marriage license, which you don't keep. Marriage certificates are usually needed for the Social Security Administration status and/or name change, driver license name change, mortgage loans, life insurance, health insurance, etc.
Wills
If you're wondering how long should you keep financial records, your will should be at the very top of your list to keep forever. It's necessary upon death for the designation of properties, rights, and the deceased person’s requests.
Keeping records also assists when there may be errors within the filing system at a registrar such as the clerk of court, or even the lack of filing altogether.
Records of paid-off mortgages on housing, land, and other property
Deeds of trusts, promissory notes, and satisfaction notes could become extremely important documents. Especially in the event of clerical errors from either the mortgage lending office, attorney’s office, or county registrar's office, during the transfer or sale of a home or property.
IRA contribution statements for non-deductible contributions to prove that you paid taxes
Having this documentation is necessary to avoid tax implications due to errors or misfiling.
Divorce decrees
If you go through a divorce, you need to keep the associated paperwork. Things like your divorce decree and anything involving child or spousal support, as well as the settlement and financial papers are essentials.
Social security card
Your social security card, with your social security number, is extremely important to have. You need it for your job, social security, etc.
Although you can get a replacement card if needed, it's something you should always hold onto as your number will not change.
Financial record keeping for things that are active
If you have active contracts, loans, or other financial obligations/contributions that are active, you'll want to know how long to keep financial records of this kind. You should keep those records indefinitely.
Examples include:
- Insurance documents
- Contracts
- Retirement plan contributions
- Equity/stock records
- Brokerage statements
- Home improvement records
- Property tax records
- Ongoing debt repayments
- Records for items associated with active warranties
- Records for items that have not exceeded their return dates
These are documents to keep just in case you need them at any time. You never know when there could be issues several years from now and you may need these documents.
There have been instances where property issues weren’t discovered until decades later. So it’s important to keep these documents indefinitely.
Financial documents to keep at least 3 years
How long should you keep financial records that aren't related to taxes and shouldn't be kept forever? There are some documents that you can keep for a shorter amount of time, but it would be pertinent to keep them.
Many of these documents should be kept for three years to provide proof of payment, resolution, or prior claims service.
- Canceled insurance policies
- Records of property sales e.g. investments and real estate
- Paid medical bills (from the final payment of specified treatment)
- Any documentation that you need for capital gains tax or to support deductions on your tax returns
Any active/open claims under former policies should be kept for three years from the date the claim is resolved.
How long to keep financial records like tax returns and documents?
For certain records, after 7 years it is no longer necessary to keep them. Especially for things like paid off debts. Because 7 years is typically the time frame allowable for those items to be challenged.
You can however keep them longer if you choose. These record types include:
- Tax returns
- Tax-related records e.g. alimony payments, charitable contributions, etc.
IRS guidelines regarding keeping your tax returns
How long should you keep financial records like tax returns? It's important to keep the below guidelines from the IRS in mind as it relates to your tax returns:
Tax refunds or credits
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.
Loss claims
Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
Unreported income
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.
No tax return filed
Keep records indefinitely if you do not file a return.
Fraudulent reports
Keep records indefinitely if you file a fraudulent return report.
Employment tax records
Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
How long should you keep bank statements?
Bank statements fall under the category of financial documents to keep at least a year. Essentially, your bank statements show a record of your financial transactions and you want to hold onto them for a year's time.
These types of documents are typically the more commonly occurring documents you may have. They are also important to have if you need to dispute a transaction or prove payment or resolve.
Now you know the answer to, "how long should you keep bank statements?" Other statement documents you should keep include:
- Canceled checks
- Paycheck records
- Bill payment records
Note: If any of these documents are a requirement for tax deductions, you will need to keep them longer.
Electronic banking records
Many companies now offer electronic paycheck records, online bill pay services, and online banking. If you utilize these services and save documents with sensitive data, it is important to encrypt the device and/or the files saved.
It is also important to use common safety measures. For instance, using a device or computer that has updated malware protection, changing your password often, and refraining from using devices you don't trust.
How long to keep business records?
There are different rules for record retention for your business. Since most businesses have more moving parts and deal with more than just the owner, there will be more records. Also, most business record retention requirements are more stringent.
Some records deal with the business, some deal with the customers, some deal with the employees, and some deal with the Internal Revenue Service.
Amount of time to keep different types of business documents
You should be aware of how long to keep documents as a business owner. Below are some of the records that businesses need to keep according to the IRS and the suggested amount of time to keep them:
Income taxes
Keep these for 3 years typically. Keep these records for 6 years if you don't report income you should report, or it's more than 25% of gross income. 7 if there are any deductions for debt loss or bad checks.
Employee payment/tax records
Keep these records for 4 years after said taxes have been paid or are to be paid.
How long to keep other business documents
Here are some other important business documents that you should hold onto for certain amounts of time.
Workers Compensation records
Since workers' compensation policies vary by state, it's advisable to keep these records for 10 years.
Business operational costs and expenses
Most of these expenses are considered supportive documentation for tax purposes. Anything considered supportive documentation should be kept for 3-7 years unless it falls under other IRS guidelines.
Documents associated with insurance policy coverage that may require proof of purchase/cost, etc. should be kept longer if the insurance company requires it. Any documentation associated with warranties should be kept until coverage expires if it is beyond 3 years.
Business bank statements
Wondering how long to keep financial records like bank statements? Keep these for 7 years. It's a good idea to keep a detailed yearly record to minimize the paperwork associated with monthly statements.
Note: If you use anything for tax purposes, the guidelines for the IRS will apply. See the above or the official IRS website.
Key IRS points on financial record keeping
The IRS specifically mentions two points, for both businesses and individuals. Hopefully, you don't have a requirement to do them:
- Keep records for 6 years if you do not report income that you should report, and this unreported income is more than 25% of the gross income shown on your return.
- Didn't file a tax return? Keep records indefinitely if you do not file a return.
- Were you the victim of tax fraud? Keep records indefinitely if you file a fraudulent return report.
Many companies now use technology for some financial services and or billing. It is important to make sure when you do utilize these services for financial, billing, and/or storing potentially confidential and personal data, you use trusted and secure technology to prevent identity theft and fraud.
When in doubt save your records
It is not uncommon to get advice that you should save everything for your business. If you have the luxury of unlimited space, physical or digital, and are great with organization, this is always an option as well.
As mentioned earlier, if you feel uneasy about getting rid of something, keep it.
So where should you keep your financial documents?
Now that you know how long to keep financial records, the question becomes how to store them. There are a couple of options.
Keep digital records
The most secure way is to scan and encrypt your records which you can store locally on a hard drive with an encrypted cloud backup.
If you like the idea of digital records without setting up the technology yourself, select banks now offer virtual safety deposit boxes. They allow you to securely upload documents, many of them free if it remains under a certain storage size.
Keep records in a safe
If you are uncomfortable with digital copies, then you can keep paper copies securely in a locked safe. Make sure that it is both fire and waterproof or you can put them in a safety deposit box in a vault at your bank.
Our favorite safes include:
Fireproof lock box
The Fireproof lock box from SentrySafe: It features a flat key lock to prevent the lid from opening in the event of a fire and includes two keys. The safe accommodates letter-size hanging files that can be purchased separately for easy storage of passports, social security cards, and birth certificates.
Security safe
The AmazonBasics Security Safe: This compact safe offers a 0.5-cubic-foot capacity. It nicely accommodates a wide range of items, including legal and financial documents, passports, jewelry, cash, and more.
One key thing to note is that a living will and any other document that is usually needed in an emergency or within a short time frame should not be secured in a safety deposit box.
For example, documents containing one's funeral wishes. Because accessing them is usually limited to banking hours. And they are typically only accessible to authorized individuals.
What records should you shred?
When it comes to what specific records you should shred, here's a list to keep in mind:
Credit card offers in the mail
This is so no one else applies for credit in your name. They won't be able to access your information so easily.
Canceled or voided checks
These checks have your account number and routing information on them. It's important that you shred this so your information is safe.
Expired credit cards
The magnetic strip still has encoded information on it. You want to get rid of expired credit cards because of this.
Old pay stubs
You can always request this from your employer. So you don't need to keep it, and it's better to shred it.
Keep in mind that, if you choose not to keep a financial or personal record, it's a good idea to shred it to protect yourself from identity theft.
To shred documents at home, you can purchase an inexpensive cross-cut paper and credit card shredder.
The right financial record keeping can save you a ton of stress
The right financial record keeping ensures that you are aware of your big financial picture. And very importantly, when you are aware of all your records, and how long to keep financial records, you can protect yourself from an identity thief.
Make sure that if you ever become incapacitated, the people in your life who would need these documents know where to find them. It’s important to make sure that whoever would need to pay the bills and find these types of documents can access them easily.
Don’t forget, if you are unsure if you should keep something, keep it. It's better to keep it and not need it than to need it but have thrown it out.
And remember that financial record keeping is just one part of your financial health. Also read up on investing, your retirement plan, and effective budgeting.