Have you ever wondered how long to keep important financial records such as receipts, bank statements, and credit card bills? You’re not alone! Rather than keep everything forever and let the stacks of paper reach the ceiling, develop an organized system of keeping receipts for the recommended amount of time.
Remember, the IRS recommends keeping tax-related documents for at least six years. An audit can be performed up to six years after filing if an error is suspected, and you’ll want proof of your purchases if that happens.
How Long to Keep Financial Records and Why
Determining how long to keep financial records depends on several factors, including the record type and whether it’s for personal or business documentation. Whether you’re keeping the record for one month or 10 years, record-keeping best practices dictate you should store documents electronically (go paperless when you can), and always backup your files by saving them in the cloud. At Mazuma, our accounting experts help our clients save and organize important financial information in a secure online portal so the information never gets lost and is easily accessible.
Below is a detailed summary of how long to keep financial records, categorized from the least amount of time to the most.
The key to successful record retention is staying organized. Set up an efficient monthly system and you’ll be more likely to stick with it. For instance, write the type of expense on each receipt and put it in a dedicated file each month. You’ll want to keep utility payment receipts, bank withdrawals, and deposit slips until you receive your monthly statements. After you’ve had time to review your statements, you can dispose of the receipts.
Keep the following documents for one month:
- Receipts for non-deductible items
- Deposits / ATM slips
- Reconciled bank statements
You will need proof of payments and any business financial activity in case of disputes, identity theft, or fraud. Therefore, create a file for all banking and investment records for both your personal and business accounts.
Keep the following documents for one to three years:
- Bank records
- Insurance policies
- Investment statements
- Mortgage statements
- Receipts for charitable contributors
- All business-related documents
You might be wondering how long to keep bank statements. Err on the side of caution. This will be helpful if you claim a loss or a bad debt deduction.
Keep the following documents for seven or more years:
- Income tax returns (federal and state)
- W-2s and 1099s
- Medical bills
- Receipts for tax-deductible items
- Mileage records
- Canceled checks
- Real estate tax forms
- Credit cards statements that contain purchases used as tax deductions
- Retirement plan contributions
Why should you keep some items permanently? Some documentation has no expiration date, such as birth certificates and social security cards. Plus, these documents can serve as proof of identity. For paperwork like auto titles, or other purchases, store the related documents for as long as you own those items.
Keep the following documents permanently:
- Birth certificates
- Social security cards
- Education records
- Auto titles
- Investment statements
- Home improvement receipts*
- Receipts from major purchases*
- Current insurance policies
- Medical records
- Pension / retirement contracts
- Property agreements
- IRA contribution records
- Mortgage documents
- Life insurance policies
- Safe deposit box inventory
*for insurance purposes
Where to Store Your Financial Records for Safekeeping
Keep vital personal documents, like birth certificates, passports, marriage certificates, etc., in a secure place, such as a home safe, fire-safe container, or a bank’s safe deposit box.
Documents such as tax returns, receipts, bank statements, or pay stubs can also be kept in a safe deposit box or simply a locked file at home. For electronic documents, store them in a password-protected folder on your desktop or another secure location.
At Mazuma, we help our clients save and organize important financial information in our secure online accounting portal. We not only complete your bookkeeping and taxes, but we also provide easy access to tax returns and other important business documents.
Why You Should Shred Discarded Documents
You may be tempted to toss old financial records in the trash. But if any of those documents contain sensitive personal information, like your account or social security numbers, you’ll want to shred them first. This reduces the risk of identity theft.
Shred any document that contains:
- Social Security numbers
- Account numbers
- Personal signatures
- Phone numbers
- Email addresses
- Confidential information (medical, financial, or legal)
The Benefits of Record Keeping
Knowing how long to keep financial records is important because it can help you stay organized. This is crucial if you’re a business owner, as you’ll want to have everything readily available should you be audited or need to go to court. Organizing your records can also help you prepare accurate financial statements and tax returns, stay compliant, access important reports, apply for loans, and plan for the future.
Mazuma Can Help!
Need help organizing your business financial records? At Mazuma, we can help with your business accounting and taxes. We’ll handle your books throughout the year so we can keep you organized and maximize your tax savings, all for a minimal monthly fee. Contact us today!