How Long Should I Keep Tax Records, Medical Bills, Financial and Bank Statements

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Key Documents

Like me I am sure you get tons of bills and statements in the mail or delivered electronically. Most times you just action and then toss them. But you may in fact be creating legal or tax issues by not keeping certain documents.  Where possible you should try and retain a hard copy and electronic version (scanned) of all the relevant documents listed below.

Tax Records – Business and Personal (7 years)

The IRS only requires 3 years of tax records if you are audited. But if they find you are under-reporting your income (i.e. you owe taxes) they can request up to 6 years of tax records. However, where the IRS suspects fraudulent or missing returns, there is no limit on how far they can go back.

So to play it safe, and assuming most people are not tax fraudsters, keep your tax related records for 7 years. I use old shoe boxes to keep tax records related to a certain year. Since I also have business related taxes, I keep an extra “shoebox” for business related tax records. I also keep electronic copies of the actual tax returns and key W2 documents.

Legal and Identification Documents – Birth Certificates, Passports, Social Security cards etc (Keep forever)

Needless to say these documents legally establish who you are and in today’s world where you must prove your identity in any financial or legal transaction – keeping these documents safe is key. In addition to the hard copy version of all these documents, I keep a scanned copy of these on a local USB stick and have burned copies to a CD that I keep at my parents house. Do not store these documents online, or you may become a victim of identity theft if your online accounts or PC are compromised

Home Improvement Records (7 years after sale of the house for tax purposes)

Keep records of substantive improvements made to your house – like adding a deck or new kitchen remodel. The reason is tax related because the cost of improvements can be added to the original purchase price of the house  and lower the taxable gain on a house when it is sold. This article details the criteria for capital gains/losses you can exclude from selling a house – $250,000 for singles or $500,000 if married

Utility Bills (1 year)

These are worth keep if you have disputes with your utility company or are planning to sell your house. Buyers like to see a year of records to get an idea of utility costs through summer and winter. The best way to keep this is save or scan your online utility documents to a PDF or Word file.

Investment Statements and Retirement account details (Up to 7 years)

The key statements to keep are the quarterly and yearly summaries. Also when you buy and sell securities keep an electronic record of the transaction or trade note (from your broker) so that you can figure your cost basis and associated capital gains or losses. Also if you are claiming a big capital loss or gain, you need to keep the documents as evidence for tax reasons which means holding on to it for up to seven years

Medical Records, Benefit Receipts and Explanation of benefit statements (7 years for claimed deductions, 1 year otherwise for insurance claim verification)

Keep receipts for medical expenses throughout the year in case your insurance company or FSA provider requests proof of visit or verification of medical claims. You can also deduct medical expenses that exceed 7.5 percent of adjusted gross income. If you meet this threshold and plan to take the deduction you will have to keep the medical receipts as tax records

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{ 6 comments… read them below or add one }

danny July 23, 2012 at 2:26 am

Got a job at a hospital where the company that did the background checks wanted proof of employment for the last 5 yrs by w-2 s. so 7 yrs is a good time.

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michael March 6, 2011 at 11:43 pm

Do electronic copies (scanned documents saved as PDF) of all tax documents (returns and supporting documents) cover me from a retention perspective? I hate keeping paper files. I do my taxes on TurboTax and file electronically so all the official tax documents are already in PDF. I appreciate the advice in advance.

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andys2i March 8, 2011 at 11:57 am

As I understand it, electronic copies (of the original) should suffice as long as they show the provider and TFN/SSN numbers. The only original I would recommend keeping is your W2′s., but even these are moving electronic.

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Jude June 22, 2010 at 9:00 pm

My recommendation would be never throw away copies of your tax returns and checks made out to the government — anything else, I would say keep for at least six years

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Wg June 22, 2010 at 8:57 pm

There’s something of a problem with the IRS suggestion. They have ten years to find mistakes in your taxes and collect on any amounts you may have underpaid. Generally, the IRS won’t look that far back, so some financial experts suggest you hold onto tax records, receipts, W-2s, and et cetera for seven years. This compromise seems a little silly. If technically the IRS can call you to account for taxes you filed ten years ago, it would seem prudent to keep the forms et al, for ten years. Even if it is not likely you’ll need a return from ten years prior, it would be good to have that information if you ever need it.

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Gail June 22, 2010 at 10:08 am

the other thing I would recommend keeping are paychecks. Keep 12 months from your current employer, and then maybe your first and final one from past employers. These could be very useful if asked for employment references etc. Also a good way to see how your pay changes over your career.

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