Pay Day Hawaii

By now you’ve either finished preparing your taxes, or you are well on your way. And that means you’ve gone through all your financial paperwork for the previous year. How much of it should you keep? What does the IRS require, and what’s really necessary?

The reasons you have to keep records at all is for backup to a possible tax issue, for proof that you did something (made a payment), for legal records (birth certificates), or just so you can refer to it later (warrantees).

What you should keep:

Tax returns: Keep these a minimum of 3 years from the date you filed your taxes. If you operate your own business (and not just retail or professional businesses—contracting and freelancing apply here, too), the IRS has 6 years to audit you, so keep your records for 7 years. However, keep in mind that there is no period of limitations for audits when a tax return is fraudulent, or if no tax return was filed at all, so consider if you just want to keep ALL tax returns.

Supporting tax return documents you should keep the same length of time:

• W-2s, 1099s, interest statements, alimony collected, any other income reports
• Deduction records: receipts, cancelled checks, charitable contributions, retirement plan contributions, statements

Bank statements: Keep for 1 year, unless they contain information you are using to support your tax return filing.

Vehicle documents:

• Keep the title until you have sold or disposed of the vehicle.
• Keep maintenance records if you plan on selling the vehicle.
• Keep insurance records for as long as you own the vehicle.

Home or property documents:

• Keep the real estate deed for as long as you own the property.
• Also keep all property purchase documents for as long as you own the property.
• Keep records of any permanent home or property improvements, and keep records of any expenses incurred in the purchase or sale of the property. Make sure these don’t get “stuck” in previous years’ tax returns.

Loan documentation:

• Keep any documentation related to loans, including the original loan document and statements, until you have paid off the loan.
• Once the loan is paid off, keep the documents that prove you paid in full.
• After you have sold the item or property that you got the loan for, shred the records.

Medical and health insurance records:

• Keep your paperwork for as long as you have the policy, or until you renew it.
• Keep documents for any unresolved/unreimbursed or unpaid claims.
• Keep documents for any ongoing treatments.
• If you think your out-of-pocket medical expenses are going to exceed 7.5% of your adjusted gross income (after you take out your other tax deductions), then keep all medical, medication, and dental expense records that year for a tax deduction.

Investments:

• Keep annual investment statements and certificates until you sell the investment.
• If you made a nondeductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.
• Keep brokerage statements until you sell the securities. You will need the purchase or sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.

If you are self-employed:

• Make sure to keep copies of any bills that support deductions on your tax return–utilities if you claim a home office, telephone bills if you claim it as a business expense.
• Keep your bank statements.
• Keep credit card statements if you need them to support a deduction.
• Keep these records for as long as you keep the corresponding tax return.

Receipts:

• Keep receipts that are used to support a tax deduction.
• Keep receipts that are for large purchases, or large-ticket items, until you sell or dispose of that purchase.

What to keep forever:

Birth certificates, marriage licenses, divorce decrees, passports, education records, military service records, Social Security cards, other legal resolutions, adoption records, wills (until updated), life insurance

What you should discard:

• Utility and telephone bills once your payment has been processed (unless you are self-employed—see above).
• Cancelled checks for cash or non-deductible expenses
• Receipts for purchases not tax-deductible (although, do keep receipts for credit card purchases until you reconcile your statement)
• Expired warranties, and warranties/documentation for items you no longer own.
• Pay stubs after reconciling with year-end W-2s
• Credit card statements, once payments and charges have been processed and reconciled (unless you are self-employed—see above).
• Social Security statements—only keep the most recent one
• ATM receipts, unless you want to keep the check image in a deposit
• Unnecessary “sales” or information that sometimes comes with a credit card or utility statement.

Remember! Always shred anything you are discarding that contains any personal information at all.