How Long do You Need to Keep Your Financial Records to Stay on The Safe Side

how long do you keep financial records

By Torri Myler on September 06, 2010 0

When my mom last asked me for help with her telephone and Internet provider who without notice reverted to an older contract and started charging twice the previous amount for its services, I was impressed by how neatly and thoroughly she kept all the payment records. In fact, she had a filing cabinet full of slips and sheets that evidenced a decade's worth or more of running a house. There was hardly a document you could not find there which had gone through her fingers and, for her, had some potential value against the demands of various institutions. So, there was a huge pile of tax forms going back into ancient times, a wealth of bank and brokerage statements, credit reports and loan information, medical costs documentation and tonnes of confirmations and receipts from different service providers. The sight was at the same time impressive and a little absurd. While it is laudable to keep everything in its right place, is there any point in retaining every single piece of office paper about you for future reference?

What my mom wanted when she started her system of record keeping in the first place was avoiding trouble with authorities. In other words, she wished to stay on the safe side in case something goes wrong on the part of a bank or a telecom or some bureaucratic issue from the past comes back to haunt her family. Nothing ever has, possibly thanks to the fact that her files have been so complete. However, the big question of how

much she really needs to do to get the same effect without unnecessary burden remains.

With tax information, the standard requirement the I.R.S. puts forward in its regulations is that proof may be needed of income, credit or deductions that is three years old, starting from the date of a return. This statute of limitations, however, refers only to tax reports filed correctly. If individuals fail to report substantial part of their income on time, the tax office may want to look back as deep as six years. Many tax experts prefer playing it safe and advise never to throw away past tax statements or other government-related documents.

With other types of information, especially transaction confirmations, the period of keeping records can be typically much shorter without running into risk. Paid bills from service providers can be thrown away as soon as you see zero balance the following month or there is a guarantee of the payment having been correctly processed. Documents related to repaying a bank loan can be scaled down to the final payback confirmation as there is little use in collecting every single installment.

Finally, it does not take executive training to realize that now a lot of institutions encourage their customers to stick with the electronic format. It is good to find out what exactly and for how long different records can be accessed this way as arrangements vary from institutions to institution, but again it seems to be a relatively simple task that does not involve entering executive training programs. Clearly, without big effort, quite a lot can be simplified in financial documentation.


Category: Personal Finance

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