After completing the arduous task of reconciling your bank statement or preparing your tax return, it may be tempting to discard the related financial documents. However, it’s wise to hold on to these records for a few years just in case you’re investigated by the tax man. Even if you don’t normally file a tax return, mortgage lenders usually want to see a decent history of your finances, so holding on to your banking and credit card statements is recommended.
How Long to Keep Financial Records After Death
When someone dies, her executor or administrator becomes responsible for collecting the deceased’s cash and assets, paying bills, and distributing the estate to beneficiaries. Part of the job involves filing an estate taxes return. Like any other tax return, the IRS can randomly audit the filing up to three years after the filing date. So, you’ll need to keep records for at least that long. In some cases, relatives have an opportunity to challenge a will. They’ll usually have to move fast – in most states, you have to mount a challenge within three or four months after probate – but there are exceptions, and a case could take many years to resolve. It would be sensible to keep the deceased’s documents for at least seven years, plenty of time to resolve disputes.
Read More: How Long Do You Keep Tax Records?
How Long to Keep Financial Records for the IRS
The basic rule here is that you keep all the records that evidence an item of income, credit or deduction shown on your tax return until the limitation period for that tax return runs out. In most cases, the limitation period is three years from the date you filed your tax return or two years from the date you paid the tax, whichever is later. The period bumps up to six or seven years if you misreport your income by 25 percent or more, or you’re filing a claim for bad debt losses and securities that have gone wrong. There’s no limitation period if you forget to file a return, or you file a fraudulent return. The IRS can perform an audit at any time in these situations, so you’ll need to keep your records forever.
How Long Do I Need to Keep My Credit Card and Bank Statements?
These documents are updated regularly, so you need to keep your bank, credit card and investment statements only until new ones arrive. Similarly, keep credit card, ATM and bank-deposit receipts until you reconcile them with your latest bank statements. Once you’ve done that, you’re free to shred or securely trash the old papers. The one caveat is a situation in which you’re planning to apply for a mortgage or loan in the near future. Lenders typically ask for at least the last two months’ of bank statements, and often many more, to evaluate your finances. It’s wise to keep at least a solid one-year history to support your loan application.
Tips for Preserving Records
The easiest way to maintain your records is to categorize paperwork by year, and label everything. If the IRS needs to perform an audit, you will have all the documents you need right at your fingertips. Plus, you can see at-a-glance when paperwork falls out of the safekeeping period and can be tossed. Papers can be stored digitally, too – the IRS is fine with digital records as long as they are clearly readable. Cloud storage solutions and mobile apps make it even easier to save important records. It’s a good idea to use a special folder, digital or otherwise, to file important papers, so they don’t get mixed up with your day-to-day documents. Use a fireproof safe for crucial and sensitive bank and investment statements, insurance policies, pension information, pay stubs, tax documents and wills.
Legal requirements vary depending on the type of documents you’re keeping, but if you maintain records for a solid seven years, you really can’t go wrong.
Jayne Thompson earned an LL.B. in Law and Business Administration from the University of Birmingham and an LL.M. in International Law from the University of East London. She practiced in various “Big Law” firms before launching a career as a commercial writer. Her work has appeared on numerous legal blogs including Quittance, Upcounsel and Medical Negligence Experts.