You know that good organization is a key to good Feng Shui, but when it comes to bills, receipts, taxes it may seem easier just to throw everything out (or keep every single thing).
In fact there’s a way to think about paper that’s guaranteed to help you organize it easily and efficiently.
Here’s a “paper timeline” I created after consulting with various paper-trail authorities and tax experts, guaranteed to help reduce your paper clutter.
Throw out now:
* Phone and utility bills. Once they’re paid, they’re history. If for any reason you need to check on an old bill, it can generally be located through the utility company’s web site (password-protected, of course).
Save for one year:
* Canceled checks, other than those you are saving with your tax records.
* Credit card statements. Once you’ve reviewed the monthly statement you may shred it when the next bill arrives. Keep statements that show tax-related expenses with your tax records.
* Store receipts, in case you need to return things on warranty.
Save for three years:
* This is the minimum amount of time that basic tax returns should be retained, plus related receipts. So if you itemize, that would include the relevant credit card and store receipts, charitable donations, etc.. See below for more information.
Save for seven years:
* As a rule, this is the safest length of time to save your tax return and related materials (see below for more on this).
* Bank Statements and cancelled checks
* Medical Receipts and insurance payments for dentists, doctors, hospitals and prescriptions.
* Tax returns involving property (see below). Retain original copies of the return as well as supporting documents such as receipts.
How long to keep tax records is a more complex question; the type of return you submit dictates how long you ought to keep it.
For a basic return, retaining it for three years is probably enough. The situation is more complicated for returns with business or rental property with depreciation involved.
If the IRS disallows depreciation they can go back and collect taxes to the beginning of your ownership; for rental property that could be twenty to thirty years. So if you have a business or rental property, you should keep the returns for as long as possible (at least seven to 10 years).
Save for Ownership period + 7 years:
* Real-estate records & transactions
* Property tax paperwork
* Title and deed to your house
* Home improvements receipts and cancelled checks
* Investment buy & sell confirmations
* Dividend reinvestment records
* Year-end brokerage statements
* Mutual fund annual statements
* Investment property purchase documents
* Retirement plan annual reports
* IRA annual reports
* Birth & marriage certificates
* Divorce decrees
* Estate planning documents
* Medical/health records
In general, federal income tax returns can be audited for up to 3 years after filing, up to 6 years if criminal fraud is suspected, and permanently if civil fraud is suspected. (If a tax return is not filed, these statutes of limitations do not begin to run.)
I hope this timeline gives you the confidence to sort through your papers, organize the ones you keep, and confidently dispose of the rest.
Please share your questions and ideas in the Comments!