Key Info to Keep for Your Financial Records (and for How Long)

Despite the fact that many businesses and services now offer paperless options, you can still wind up with a load of paperwork. It’s not uncommon for the average household to receive between 30 and 50 pages worth of paperwork in physical or electronic form each month. Obviously, the easy thing to do would be to just shred it all.

Shredding, of course, comes with certain risks. The biggest risk that you face is that you will shred information that you need. Here is how long you need to keep the information.

Digital Is Okay

Remember, you can always scan your documents into the computer. Only the government requires original documents, and they only require originals for certain things. Your ordinary utility bills and the like do not have to be original nor does the information that you get on your free credit scores. You just need to make sure that you have a copy with legible information so that it can be referenced again if needed.

If you need to keep your information for more than a year, it’s a good idea to save the information in a digital file. It saves a significant amount of space. It also makes it less likely that you will lose the information. However, you will have to make sure that you back it up regularly.

Purging the Financial Files

Utility bills and property information must all be kept for a minimum of one year. You need to keep them in case of bill disputes. It becomes even more important to keep them if you miss any payments. Keep all of the information that relates to your payment as well. Otherwise, you’re going to have to find other methods to demonstrate the authenticity of your payment. If you are not claiming any tax benefits or deductions based on your utility bills and finances, then you can purge the files after the full twelve months have passed.

Document Purging After Taking a Tax Deduction

Your financial paperwork becomes more important if you have used it to base your taking of a tax deduction or claim a tax interest. You need to make sure that you keep all of the paperwork relating to your taxes. The IRS requires that you keep it for a minimum of three years. However, MSN Finance recommends keeping all paperwork relating to a business tax deduction for at least five years. This way you do not have to scramble in case something goes wrong. Bear in mind though that the IRS retains a broad loophole. They state that you are required to maintain all of your financial records and tax returns in perpetuity if you make any errors in filing the claim or engage in any illegal behavior. Given the difficult nature of filing taxes and making sure that everything is legal, it may be best to keep all of the tax returns and information saved off on an external hard drive. That way you can protect yourself even if you’re fairly sure you have done nothing wrong.

Photo Credit: Steve Snodgrass

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