Financial Records - What To Keep

While it may not be necessary to keep every bill, receipt or statement, there are a couple that are worth holding on to:

Income Tax Returns

You should save all of your paperwork related to you Federal tax return for a minimum of three years. The IRS has up to three years from the filing date to audit your tax return, and in some cases has up to 6 years. Depending on the complexity of your tax return, this could be a rather large amount of paperwork. You should check with the state that you also file taxes in to see how long they have to audit your return.

W-2 Forms & Other Income Statements

You should retain these for as long as you keep your income tax returns. Also every year you should compare your last W-2 statement to your Social Security Statement earnings record. These statements are sent out to anyone over 25 years of age and with earned income around their birthday. For more information check out this link.

Brokerage/Mutual Fund Statements

Keep these documents for as long as you have the money invested in the accounts. This will allow you to calculate your cost basis at any future sale. Once the investment has been sold, the documents should be retained for as long as you keep your tax return for the year in which you sold the investment. If you are applying for a loan, part of the application process may require that your provide copies of your Brokerage/Mutual Fund statements.

Bank Statements

Depending on your comfort level, you could keep these for as short as it takes you to balance the account. The general advice for holding onto these statements is to keep them for at least a year. If you are applying for a loan, part of the application process may require that your provide copies of your bank statements. Again, anything related to income tax returns should be kept for up to three years.

Receipts

Keep receipts for all big ticket items, like jewelry, computers, cars, boats, appliances and home improvements. These records will help you prove the value of these items in case of loss or damage. For certain items, like home improvements these records should be kept for as long as you own the item. These costs can be used to help determine the cost basis if you need to report a capital gain or loss on the items.

Bankrate.com has a good article on additional items which should be saved on for how long.

Source:
'Publication 552 (2005), Recordkeeping for Individuals' , IRS
'Publication 523 (2007)', Selling Your Home', IRS
'What financial records to keep, how long to keep them', Bankrate.com