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Thursday, April 2, 2015

Tax Records - How long do I have to hold onto them?

It's tax time.  And when we finish the taxes, many of us pack away the records we kept for the past year.  But what about those old records from years ago?  Do we still have to keep them in the basement or in the back of a closet? Can we throw them away?

If you perform an online search for "document retention guidelines" you'll find a lot of information regarding document storage periods, but you have to dig pretty deep to find hard and fast rules.  Even then you may come up empty-handed.

Even the irs.gov site has an "it depends" clause. So how long should you keep documents?  Well, we did some of that research for you and included our findings in a checklist that we provide to anyone who might find it useful.

We'll share a few with you here in this blog and then provide a link to the more complete checklist.  Briefly, here are a few important records and how long to keep them:

Bank Statements - 7 years
Credit Card Statements - 7 years
College Loan Records - 10 years after loan is paid
Birth Certificate - Permanent

See the complete list here.


The reasons for some of the retention time periods have to do with a type of law called "Statutes of Limitations"  Basically, that is the time period when the ability to sue expires.  For example, say you caused an auto accident.  Getting sued is bad enough, but you certainly wouldn't want to be sued 25 years after the accident.  And if you had that potential suit hanging over your head, you could probably never get a loan, buy a house or be certain that you could save for retirement.  Besides, most of the witnesses might no longer be around to testify.

So various governmental bodies, usually state governments, passed laws that say that when enough time has passed, any lawsuits against you can easily be dismissed - so you can get on with your life. The time periods vary by the cause of any injury or by contract.  For example, most accidents, like car accidents, have a 2 year statute of limitations.  Most contracts have a 10 year statute of limitations.

What the retention recommendations say is that you should hold onto these documents to provide evidence in the event of a lawsuit.  So, if you got a notice of satisfaction on the student loan, don't throw it away.  If some of the records of the loan provider got destroyed, it could go back to you and demand proof that you paid.  What evidence would be better than a letter from the loan provider saying that you paid? And they have 10 years after the expected termination date of the load to make a claim.  So hold onto that one!

We have to add a disclaimer just like all of the internet sites we researched because there seems to always be an "it depends" clause depending on the type of document and circumstances.  Tax returns for example have different retention requirements depending on
the form and if there was some type of issue with the return.  So in our checklist, we added the longest period of time to cover all circumstances just to be safe.  Retention requirements change over the years, so what is required today may not be the same next year.  Be sure to check the appropriate official website periodically to see if requirements for your files have changed before discarding them.

Original or copy?

The basic rule is that if the document is a government issued one, is to be used in a real estate transaction or is a will, the original, or a certified government copy is required.  Most everything else can be an uncertified copy, in paper form or digitized.

Now, there are a few exceptions to that.  If, for example, the original is not available, (think New Orleans government records destroyed in Hurricane Katrina) a copy, if it is the best evidence available, is acceptable.  And, in the event of a lawsuit, parties can agree on to admit copies into evidence as if they were originals.  But, don't rely on a Hurricane Katrina or the reasonableness of an opposing attorney.  Keep the records you need and safely store the originals you need.

Where to store them

Most of us have developed a system for storing our old documents.  I recently moved and vowed to never move those boxes of paper again.  So, I am in the middle of a massive shredding exercise, saving the originals I need and digitizing the rest.  

Some of the documents go into a safe deposit box at the bank, others in a cardboard box in the basement.  Some stay in the filing cabinets in my home office and others get digitized and uploaded to my SafelyFiled account.  But they all have a place and can be easily located if needed.

Thanks to Terri Caldwell for helping with this blog and more importantly for putting together the Document Retention Checklist.  Click here to download a copy of the Checklist.

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