Time passes quietly, and life goes on as usual every day. It’s only on a certain day, perhaps when looking for holiday decorations before Christmas, that one might come across several large boxes of old documents in storage and sigh, “Time flies so fast!” This raises the question of how to deal with these old documents and whether or not they can all be discarded.
Among the old documents accumulated over the years, there may be tax returns, tax proof documents, bank and credit card statements, property and investment records, retirement account records, and various other documents. So, which ones need to be kept, and which ones can be thrown away? It is vaguely remembered that some tax documents only need to be kept for 7 years. Is that really the case? Let’s take a look at the explanations provided by experts summarized on the website of “USA Today”.
Regarding tax returns, the Internal Revenue Service (IRS) can audit you for any reason, or even no reason at all, within three years of when you filed your tax return. The saying that “tax returns should be kept for seven years” does have a basis. This is because if there is a significant issue like unreported income, the IRS typically audits your returns within six years. As a precaution, adding another year makes it seven years.
In reality, for serious issues like submitting fraudulent tax returns or missing information, there is no time limit for the IRS to prosecute. So, at least keeping tax returns for seven years, and preferably indefinitely, is advisable.
When it comes to tax proof documents, including W-2 forms, 1099 forms, expense receipts, and records, most people do not need these proof documents after three years. However, a more cautious approach is to keep them for at least seven years.
Regarding bank and credit card statements that are not tax proof documents, they can be discarded after one year. Yet, a cautious approach would be to keep them for at least seven years.
For property and investment records, if you own real estate, vehicles, or other investment assets, documents related to these assets should be retained while you own them. This includes property deeds, vehicle ownership documents, mortgage or lease agreements, etc. After selling properties, vehicles, or other investment assets, these documents should be kept for at least seven years to prove the purchase prices when reporting the sale for tax purposes.
The “keep for at least seven years” rule also applies to retirement account records. If you are still using your IRA or 401(k) accounts, keep their records, and continue to retain them for seven years after the account is closed. The distributions (withdrawals) from retirement accounts are considered in tax filings.
Regardless of whether you believe in the saying that “cluttered old items bring bad luck” or wish to clear out space by getting rid of old documents, the following documents should never be thrown away: birth certificates, death certificates, adoption papers, divorce decrees, lawsuits, marriage certificates, diplomas and transcripts, health and immunization records, Social Security cards, and estate or gift tax records.
After receiving new credit reports, Social Security statements, and vehicle registration certificates, the old versions of these documents can be safely destroyed.