This time of year as many people go through their clutter of receipts and financial statements from the previous year, I always get asked, “how long should I keep my financial statements” or “do I need to keep this for any reason”? I’ve decided to write a post on how long to keep financial statements: what you need to keep, for how long, and some of the reasons why you need to do so. As an added bonus, I saved the list as a PDF which you can download for free. The benefit of this is that you can keep the sheet in a folder with all of your other financial records and always have access to it.
How Long To Keep Financial Statements
Each month, you should be reconciling your checkbook to the statement that the bank sends you, or you get online. After you verify everything is correct, you should keep the monthly statements for one year. The exception to this is if there was a purchase made that relates to taxes, home improvements, a business expense, etc. In these cases, you will want to hold on to the statement permanently.
(Note: Since many have online access to your statements, you may ask why the need to keep them. After all, the bank can get them for me. While this is true, most banks will only do this for you back to a certain time, say two years. Anything older is considered “research” and they charge you per the hour for this. The average charge: $25/hour. Save the statement, avoid the fee.)
Credit Card Statements
You should keep the receipt for anything you purchase with your credit card until the statement arrives. Once you verify they match, you can toss the receipts. Unless there is a tax related purchase, you should keep the statement for seven years. Otherwise, there is no need to keep the statement any longer than 60 days.
Brokerage Statements (including Retirement Accounts)
You should keep the monthly brokerage financial statements (or quarterly brokerage financial statements if you get them four times a year) until you get your annual statement. Once you annual brokerage statement is received and matches the monthly/quarterly statements, you can shred the monthly/quarterly statements. Keep the annual statement until you sell the securities listed in it.
Keep your pay stubs until you receive your W-2. Verify it matches, then shred the stubs. Hold on to the W-2 for at least seven years.
Keep your bills for one year. After that, you can shred them. In the event the bill is tax related or is for a large purchase, you will want to keep that permanently. Large purchases include cars, houses, computers, jewelry, etc.
Any records relating to your home/condo should be kept for six years to permanently. This also includes any bills relating to improvements you made. This is because the money you spend improving your house will adjust the cost basis for you, which affects your capital gains.
Keep all returns, deductible receipts, and any other tax document for seven years. You may even want to keep them permanently. The IRS has seven years to audit you if they feel that you made an error on your return. Additionally, the IRS has six years to challenge your return if they feel you under reported gross income by 25% or more, and there is no time limit on how far you can get audited if the IRS feels that you filed a fraudulent return.
Additionally, you have three years to re-file a return if you made an error and are claiming a refund.
Hopefully, this list helps you organize your financial records and gain a better understanding of what financial statements to keep and what to shred.