How Long Should You Keep Financial Documents For?

If you are like most people, the amount of receipts and documents that come to you every month is hard to handle at times. From paycheck stubs, bank statements, and tax returns, you may not know what to keep and for how long.

Fortunately, keeping your financial documents organized and in the correct format can help you access them when the need arises, thus avoiding the stress associated with searching records.

Here is a general guideline of the period to keep some standard financial documents.

Pay stubs

Pay stubs are vital financial documents that serve as proof of employment and income, especially when applying for a personal loan.

Ideally, these documents should be held for at least one year or until you confirm that the amounts on your pay stubs reconcile with the amounts indicated on the annual W-2 tax form sent out by your employer.

Because most employers offer pay stubs in hard copies, it may be challenging to keep these documents for months without misplacing some. Luckily, you can use an online pay stub maker platform to create soft copies and store them in a cloud account.

However, be sure to have the pay stubs signed by your employer every time you want to use them for legal purposes, such as a loan application.

Bank statements

In most cases, banks allow their customers to request old bank statements and checks. But that comes at a fee.

Therefore, if you have made a significant purchase using a check, you may want to hold on to your statements until you have reconciled your accounts. Doing this will ensure that you only shred the documents you no longer need.

Investment statement

If you receive monthly or quarterly investment statements, it is crucial to keep them until you receive your annual report. Ideally, never shred these documents unless the amounts in your yearly statements reconcile with your other reports.

Mortgages and other loans

When you are in the process of servicing a mortgage, student loan, or any kind of loan, it is vital to hold on to every document relating to the loan until it is paid off entirely.

Upon paying off a loan or a mortgage, ensure that you receive a mortgage release document or necessary documentation to prove your loan repayment which you should retain indefinitely.

Tax documents

It is recommendable that you keep your tax-related document for up to seven years. While the IRS statute of limitation stands at three years, some circumstances can result in an audit going as back as six years. Such cases are likely if there is evidence pointing to an income underreporting of 25% or more.

Property records

If you are a property owner, you should ensure that you keep all documents relating to the purchase and ownership of your home as long as you maintain the ownership of the property.

Besides keeping documents proving ownership, maintaining records on any substantial home improvements such as additions and remodeling projects is essential. According to experts, keeping these records up to seven years after selling the property is recommendable.

Additionally, it is essential to document the expenses incurred in buying or selling your property, such as real estate agents’ commissions paid out and legal fees. Your property records help establish the basis of your property pricing when selling and could also be the property’s capital gain tax.

Putting it all together

While retaining a paper train for your financial transactions may be necessary, holding on to financial documents that have outlived their purpose could be a reason why your paperwork is in a mess. Knowing what to keep and for how long can be a significant step in bringing order in your financial records filing system.