[--- Reading Time: 2 minutes ---]

If you’re like most people, you probably have a random pile of documents you’re holding on to just in case.  While most sales receipts can be tossed after a month, you’ll need to hold on to tax-related documents for a longer period of time.  Here’s a quick rundown of how long to keep important tax records and why.

Type of record How long to keep Why?
Tax returns and supporting documents At least 7 years
  • The IRS has 3 years to audit your return if they think you made an honest mistake.
  • Six years if you underreported your income by at least 25 percent.
  • Indefinitely if you filed a fraudulent return or didn’t file at all.
Real estate and home improvement records As long as you own the property plus an additional 7 years after you sell Records pertaining to the buying, selling and improvement of your home help establish your cost basis and lower your capital gains tax.
Brokerage statements Retain annual statements as long as you own the security plus 7 years after you sell Serves as proof of your capital gains and losses on your tax return.
Bank statements Annual statements up to 7 years Provides proof of interest income and helps keep track of tax-related expenses.
Retirement plan statements Until you retire or close the account You can shred your quarterly statements once you receive your annual summary.  If you contributed to a Roth IRA, keep the statements as proof that you already paid taxes on the money.
Pay stubs One year Once you receive your W-2 and everything matches, the stubs are no longer needed.
Credit card receipts and statements One month Unless you need the information for tax-related purposes, you can shred your receipts after you receive your monthly statement.
Utility bills One month Feel free to shred the bill once you receive your next statement showing proof of payment.  Keep longer if needed for tax purposes.

Additional records to keep forever

  • Social security cards
  • Birth and death certificates
  • Adoption papers
  • Custody agreements
  • Marriages licenses and divorce decrees
  • ID cards and passports
  • Wills, trusts, power of attorney
  • Pension plan documents
  • Academic records
  • Military discharge papers

Store these documents at home in a fire-proof safe or in bank safe deposit box so you don’t have to worry about them being lost or damaged.

How to get rid of unwanted documents

When it’s time to dispose of unwanted documents, use a cross-cut shredder.  By shredding your papers into tiny little pieces, you minimize the risk of your identity being stolen.