When it comes to maintaining essential documents, it can be difficult to know what you need to keep and what should go into the shredder or the recycling bin. If you hold on to things too long, you can easily end up with a cluttered home. If you get rid of them too soon, you may find yourself in a pickle when it comes to paying taxes, filing claims, or answering questions.
The key is to make sure that you keep those things that you might need, but only for as long as you might need them. Here are some guidelines to help you sort out the essentials from the things that are disposable. We’ll also talk about where to keep those important papers so that you have them when you need them.
What to Keep Indefinitely
Any documentation that is unlikely to change over the course of your lifetime should be kept indefinitely. That includes all of the following:
- Birth certificates
- Marriage certificates
- Death certificates
- Adoption papers
- Social Security cards
- Drivers’ licenses and other photo IDs
- Wills, living wills, and powers of attorney
- Mortgage deeds
- Deeds to your vehicles
- Insurance policies
- Medical insurance cards
Once an insurance policy has lapsed, you can update it with the new policy. However, in many cases the insurance company may provide you only a new Declarations Page while the terms of the policy remain the same. The same goes for any other documents that are regularly updated, such as passports. You will need your old passport to get a new one.
What to Save for Three to Six Years
Now let’s talk about items that you need to keep for a period of three to six years. These are mostly items related to your taxes:
- Copies of your federal and state tax returns
- Copies of all supporting documentation, including additional forms filed and your W-2 and 1099 forms
- Original receipts and other documentation that is directly referenced on your tax return
You do not need to keep every original receipt. However, if you made a major purchase that you deducted on your taxes you should keep it until you are sure that your return will not be subjected to an audit. As a rule, three years is long enough. However, in the event that you failed to report 25% or more of your income, or failed to file a return, the IRS has six years to audit you and an indefinite amount of time to collect back taxes.
What to Save in the Short Term
The items you choose to save in the short term are mostly a matter of choice. Some people choose to save a year’s worth of utility bills, while others keep them only for a month or two. If you have a home business and deduct any part of your utilities as a business expense, you should follow the same rules that you would for your tax returns.
The same goes for bank and credit card statements. Some people keep them for years, but as long as you dispose of them properly you can probably just keep a few months’ worth along with your end-of-year interest and earnings statement.
Where to Store Things
Storage of documents doesn’t have to be difficult if you use common sense. Any document that would be difficult or impossible to replace should be stored either in a home safe or in a safe deposit box. That includes all of the items listed in the “To be stored indefinitely” list above.
Personal documents, such as your driver’s license, medical insurance card (unless it has your Social Security number on it) and your most commonly-used credit cards should be kept in your wallet or purse. Other documents, such as old utility bills or bank statements, can simply be filed.
It is a good idea to go through your non-essential documents every six months or so and shred anything that you no longer need to keep. If you are keeping six months’ worth of tax records, you can shred the oldest year at the same time that you file your taxes.
No matter what, the important people in your life should know where to find your will, your power of attorney, and your life insurance policy and bank records. Your filing system should be clear and easy to understand so that in the event something happens to you, the people who care about you can find what they need.