Some people like to start their New Year’s off with a clean slate, going through the past year’s files and tossing or shredding anything they don’t absolutely need. However, many don’t, in part because we’re not sure exactly what documents we need to keep, and which we can toss. This article from AARP Magazine provides the missing information so you can get started: “When to Keep, Shred or Scan Important Papers.”
Tax Returns. In general, you only need to keep the tax returns and supporting documents that extend back to the IRS’s window of time to audit taxpayers. The can only audit you for three years after the end of the taxable year, or when you submitted your tax return, whichever is later. This means unless you’re planning on running for office, keeping the tax returns and supporting documentation for the last three tax years is usually enough. However, if the IRS finds that there is a substantial error, which usually means you omitted 25% or more of your income, in any of those three years, then the time period doubles to six years.
Regardless of how you earn your income, start by visiting MySocialSecurity.gov account before shredding to make sure that your income is being accurately recorded. Having your tax records in hand will make it easier to get any figures fixed.
As for documents regarding homeownership, keep records related to the home until you sell the house. You can use home-improvement receipts to possibly reduce taxes at that time.
Banking and Investments. If you or your spouse might be applying for Medicaid/Medi-Cal to pay nursing home costs, you’ll need to have five years of financial records. That includes bank statements, credit card statements, and statements from a brokerage or financial advisors. This is so the government can look for any asset transfers that might delay eligibility.
If that’s not the case, then you only need banking and financial statements for a year, except for those issued for income-related purposes to provide the IRS with a record of tax-related transactions. Your bank or credit card issuer may have online statements going back several years online. However, if not, download statements and save them in a password-protected folder on your home computer.
Stocks and bond purchases should be kept for six years after filing the return reporting the sale of the security. Again, this is for the IRS.
If you have a stack of canceled checks, shred them. Almost every bank and credit union today have an electronic version of your checks.
Medical Records. These are the records you want to keep indefinitely, especially if you have had a serious illness or injury. The information may make a difference in how your physicians treat you in the future, so normal or not, hang on to the following documents: surgical reports, hospital discharge summaries, and treatment plans for major illnesses. Put these in a password-protected folder in your computer or a secure cloud-based account, so they can be shared with future healthcare providers. You should also keep immunization and vaccination records. The goal is to have your own medical records and not to rely on your doctor’s office for these documents, as many doctor’s offices do not have accessible or electronic records. This is especially true if you have had appointments with multiple offices for your care.
Maintain proof of payments to medical providers for six years, with the relevant tax return, in case the IRS questions a health care deduction.
Use the information above as a guideline to help you make a clean start with your paperwork for 2020, and remember to put your documents in one secure place that your successor agents can find.
Reference: AARP Magazine (August 5, 2019) “When to Keep, Shred or Scan Important Papers”