What Documents Should I Keep?

Our American landscape – urban, suburban and rural – is dotted with self-storage units, and every year, more dots crop up. With the trend of downsizing, that increase shows no signs of slowing.

In fact, if you’re looking for a growth industry to invest in, you might want to consider storage units, recommends the National Real Estate Investor®.

“Vacancy rates continued to decline in the first quarter and rents climbed at a healthy rate. Demand is expected to hold steady as users grow accustomed to storing their goods,” the online site reported in mid-2016.

And just what goods are consumers storing? Furniture and seasonal items, for sure, but also lots of “paper” products – books, magazines, newspapers, and photographs, along with file boxes and cabinets full of important documents and insignificant stuff.

Let’s tackle that last category. The New Year, especially here in cold, snowy Northern Ohio, is a good time to start sorting and shredding files so you’re not wasting space in a closet or storage unit.

What Documents Should You Keep and For How Long?

Take a two-prong approach in sorting and storing files: 1) Weed through piles from previous years and 2) Put a new system in place for the New Year.

Recommendations from a Professional

Here are several general categories and recommendations from personal finance writer Nancy Mann Jackson.

• Medical bills
  Keep receipts for medical expenses for one year, as your insurance company may request proof of a doctor visit or other verification of medical claims. If your medical expenses total more than 10 percent of your adjusted gross income (7.5 percent for people 65 or older in tax year 2016), you can deduct them. If you plan to take that deduction, keep medical records for 3 years for tax records.

• Paycheck stubs
  Keep until the end of the year and discard after comparing to your W-2 and annual Social Security statement.

• Utility bills
  Keep for one year and then discard — unless you’re claiming a home office tax deduction, in which case keep them for 3 years.

• Credit card statements
  Keep until you’ve confirmed the charges and have proof of payment. Keep for 3 years if you need them for tax deductions.

All those ATM and bank deposit slips floating around your car, purse and pockets can be thrown out monthly after balancing your checkbook.

Save Tax Documents

The IRS says taxpayers should keep records until the period of limitations expires either to amend a return for a credit or refund or to be audited by the IRS. That period is typically 3 years after the return was filed.

However there are exceptions. For instance, keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction, and keep records indefinitely if you file a fraudulent return.

IRS records include those related to:

• Income (Forms W-2, 1099 and K-1, bank statements, brokerage statements);
• Expenses (sales slips, receipts, documents from qualified charities);
• Home (closing statements, insurance records, home improvement receipts);
• Investments (brokerage and mutual fund statements, Forms 1099 and 2439).

As for keeping actual tax returns, previous files might come in handy when filing current returns. In some cases, old tax returns can be critical when selling an investment or proving that Social Security retirement benefits are incorrect.    

If you use a tax preparer, ask how long a taxpayer’s returns are kept.

Save Insurance Documents and Contracts

Keep contracts and insurance documents while they are active. After contracts are completed or insurance policies expire, you can discard these documents.

Save These Documents Forever

Forever. That’s how long you should keep marriage (and divorce) records, birth and death certificates, adoption papers, wills and paid-off mortgage records.

Safe Storage and Disposal

Now you’ve got two main piles – keep and toss.

For storage, Bank of America recommends storing all paper records in a safe, out-of-the-way place in your home protected from damage or theft (not in a basement that is susceptible to dampness, for instance). For digital records, be sure to archive and back up all electronic records. It’s a good idea for these records to be password protected.

For discarding records, use a home shredder. If the pile is more than you or your shredder can handle, contact an office supply store to find out the per-pound charge. (FedEx charges 99 cents per pound). Many communities occasionally sponsor free shredding events, especially around April tax filing.

Molly Kavanaugh frequently wrote about Kendal at Oberlin for the Cleveland Plain Dealer, where she was a reporter for 16 years.