What Papers Do You Need To Save?

Sometimes it feels good to get rid of clutter. Cleaning out papers we have kept for years is a good project. But there are some guidelines to be aware of before you put a pile of papers on the scrap heap. Individual circumstances guide the exact documents that should be retained, but there are some general rules to be familiar with.

  • Tax documents:
    • As a general rule, copies of income tax returns as well as any supporting documents (e.g., Forms W-2, 1099 and K-1, expense receipts) should be retained for four years. However, certain situations, such as a substantial understatement of income, allow the IRS or states to go back six, which may mean it is a good idea to keep this documentation for six years.
    • Documentation of cost basis of securities, real estate, or other sales reported on the tax return
    • Form 8606, which documents nondeductible IRA contributions and Roth IRA conversions as well as distributions
    • Note that the IRS will accept digital copies of these documents. So as long as you keep a digital version of your returns and all supporting documents, the physical versions can be shredded.
  • Business documents:
    • Paper copies of key binding documents should be retained indefinitely. There are times when physical copies of these documents are needed to provide proof that they are not forged or fraudulent.
  • Real estate documents should be retained four years after the property is sold or otherwise disposed of:
    • Closing and settlement statements
    • Mortgage documents containing the terms of the loan
    • Receipts for improvements to the property
  • Financial documents:
    • Loan documents should be kept until the loan is paid off.
    • Documentation that a loan has been paid off
    • Brokerage and mutual fund statements should be retained as long as they are needed to establish the basis of any financial assets. Note that brokers generally track basis in their records but if your account is transferred to another broker you may need this information to determine your basis.
  • Gifts and inheritances:
    •  Forms 709, 8971 and 706 should be kept indefinitely.
  • Personal legal documents:
    • Knowing which physical documents to keep can be tricky in the digital era. Many documents are retained in a digital format, but that is not always enough. For example:
      • Estate planning documents. Paper copies of all documents relating to the taxpayer’s estate plan, including wills, trusts, powers of attorney and health care proxies, should be kept in a safe place in the home. These documents should be easily accessible in the event of the person’s death or incapacity. Often, copies of these documents are retained by the person’s attorney as well.
      • Death-related documents. Death certificates and all estate settlement documents should be retained indefinitely.
      • Personal documents. There are a number of documents for which physical copies should be retained indefinitely. These include:
        • Social Security cards
        • Marriage certificates and prenuptial agreements
        • Divorce certificates and other related paperwork such as separation agreements and other orders or decrees
        • Birth certificates
        • Adoption paperwork
        • Other important documents related to children or dependents
        • Military documents
        • Most current copies of passports, visas, etc. Foreign nationals should keep copies of their green cards and any other relevant documents.
        • Current insurance policies

Important note: Be sure to keep your own copies. Your accounting firm will generally retain documents necessary to demonstrate that they met their professional and contractual obligations, but that does not mean that they retain everything that you might need.

Finally, two caveatsFollowing these general guidelines is a good start, but do not forget the following three immutable rules:

  1. Be sure to check the laws in your state before disposing of any official documents.
  2. Shred all documents containing personal identification information before they are discarded.

Be sure to consult with R&A if you have any doubt about whether a document should be kept.

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About this Author

Nate is a trusted advisor for businesses and individuals, providing tax planning, compliance support, and accounting services. He also is certified as a Personal Financial Specialist which allows him to guide clients through the many challenges and phases of their career from start-up to retirement.