Do you toss everything? Or are you a pack rat holding on to every document for all eternity, just in case? In case of what, you can’t be sure, but you’re not going to throw it out. The fact is, the best record retention process is somewhere in between. Setting up a filing system and a purge cycle will help you know what to keep and how long to keep it.
Active files can be purged on a yearly basis. As the name suggests, they contain documents that reflect activity. Items such as utility bills, receipts, medical expenses, and the like are all considered active files. If you’re setting up a filing system and purge cycle, begin by discarding all but the most recent of these documents.
Create a Tax File
Documents related to income, charitable contributions, business expenses, or other deductions need to be saved. Create a section in your active files for storing these items each year. This will help you at tax time to find the documents you need and file more easily or provide the complete package to your tax preparer.
Filed Tax Retention
Once you’ve filed your taxes, it’s generally recommended to hold on to the supporting paperwork for seven years. Some special circumstances would increase this to 10 years. Check with your accountant or tax professional to understand your situation. Purge any tax documents older than this range. Organize the ones you’re saving in files labeled with the tax year and the destruction date.
Packrats, you’re in luck! There are some documents you do need to keep forever. Tax forms fall into this category. The IRS can ask you to prove you filed taxes back to the dawn of time. Other documents that should be kept permanently include warranty and instruction information for major purchases you still own, investment information, legal correspondence, and related documents, and car and property information. If you’re not sure, check with an accountant. Also, consider having a permanent file for hard to replace vital records such as title/deeds, birth certificates, marriage or divorce information, passport, etc. Ideally, these should be stored in a fireproof box or a safe deposit box at the bank.
Unless you’re holding onto something because you’re working through a dispute, might return a product, or are waiting for a claim to be paid, you probably don’t need it. The whole point of a records retention schedule is to help you keep what you need for only as long as you need it. If you’ve got a stack of receipts that aren’t serving a purpose, send them away with love.
Most credit card and bank companies have a limited time frame in which to settle a dispute. If you’re keeping them longer than that timeframe, you’re making it harder on yourself to clear up something down the road. Anything you’re holding onto because you “might need it” is likely available electronically.
As you’re setting up your files and purge cycles, speak with an accountant or other professional if you have any questions. If the whole thing seems too overwhelming to take on, a professional organizer like me can help you bring your files, and your life, back into an organized balance.