In spite of the dream of a paperless future, many of us still suffer from piles of paper that accumulate over time until they are unmanageable. Articles that we hope to read, unopened mail, utility statements, receipts, and all other types of paper build up and lead to nagging guilt from not taking care of whatever they represent. A large part of paper clutter exists as a result of uncertainty. In my organizing business clients often ask what documents need to be retained and for how long. Every situation is different but here are some general document retention guidelines:
1. Understand the purpose of the document. Understanding its purpose helps you decide whether it’s important to keep. This is often the case with contracts, agreements and legal documents. If it’s expired, inactive, or very old it usually can be tossed. However, current contracts and loan or real estate transactions within the past 10 years should be retained. If there is any chance that a legal document could be useful in a tax or potential legal dispute it should be retained.
2. Banking and financial documents. Banking, investment, credit card and other financial statements build up quickly as they’re typically received monthly or quarterly. They’re meaningful to review in the short term but not as useful for past years other than for historical perspective. These are available online to view for years back and you should receive an annual summary of investment accounts at the end of the year. For these reasons, you can save year end statements and discard monthly statements from past years.
3. Routine monthly statements. Many of the monthly household statements we receive (phone, gas/electric, water, maintenance for example) are readily available online. Again, I urge you to review them for reasonableness, resolve any discrepancies, retain those for business or tax purposes, and let the rest go.
4. Sales Receipts. I often see drawers full of receipts, extending many years back. Ask these questions…Does it have a business or tax purpose? Is it for a major purchase or something you might return? If not, let it go. Do you use them to reconcile your bank and credit card accounts? If so that’s great but ask the same questions when you’re finished.
5. Tax returns and backup documents. Keep all of your actual returns – not because it’s legally required – but because you may need them for any number of reasons and it’s much easier than getting a copy from the IRS. Consult your tax professional to find out their recommendation for retaining your tax backup documents. You can only be audited for the previous 3 years (unless fraud is suspected, in which case there is no limitation on how far back the IRS can go) so most recommend retaining for 4 - 7 years. I usually recommend 7 years to my clients to be on the safe side.
6. Business income and expenses. The same rules apply for businesses although most income and expenses will have tax implications which require you to retain receipts. For client records and other documentation, you must follow your company retention policy. If you don’t have one, get one in place!
7. Important life documents. These are the important documents which you will retain forever. I’m talking about birth/death certificates, marriage licenses, adoption papers, social security cards, passports, life insurance policies, property deeds/titles, funeral plans, medical records, estate plan documents (including medical directives and powers of attorney) and the like. What’s important here is communicating to loved ones that you have them and where they can be found. See previous post Organizing Your Life Documents.
Hopefully, this information helps you get and keep your paper documents under control. Incidentally, these same rules also apply to your electronic documents. For help sorting out your electronic files and documents see previous post Essential Steps of Electronic Organizing. As always, if you have questions or need guidance, please reach out to me.