You bought that de-cluttering book everyone was talking about, and now your closets and bookshelves look like showpieces. If you’re like a lot of people, though, the clutter you find it hardest to eliminate is paper. Not junk mail or magazines, but paper that was important once, and that you think might be again. How do you walk the fine line between being prepared and getting buried under a pile of useless old documents? Here are some of the types of documents clients most frequently ask us about, and guidelines for whether to keep or get rid of them:
Old tax documents are probably the number one category of documents we’re asked about. Fortunately, there’s a ready answer. You should be in the clear if you keep your federal tax documents for seven years—unless you are committing tax fraud, in which case clutter in your filing cabinet is the least of your worries.
As a general rule, the statute of limitations for the Internal Revenue Service to assess taxes on a taxpayer expires three years from the date a tax return was due or the date on which it was filed, whichever is later. However, most authorities recommend you keep your tax documents for seven years. As to state tax returns, the statute of limitations to collect a tax debt in Michigan is four years, but under certain circumstances, this period may be extended, so seven years is a good rule.
If you happen to be an electronic tax filer, as more and more people are, you can go ahead and get rid of your paper copies of tax returns even sooner—but make sure you have your electronic tax information backed up. And, of course, shred, don’t simply throw away. You may not need the return, but someone who finds it can certainly make use of your personal and financial data.
Some people keep bank statements (and the canceled checks that accompany them) for decades because they seem like such important financial information, but you can confidently get rid of them when they’re more than three years old. The chances that you’ll need them after three years are vanishingly small. If your bank makes your statements available online, as most banks now do, you can shred paper copies even sooner.
Explanation of Benefits (EOB) Forms
These statements that come in the wake of a medical visit explain what portion of your medical bill the insurance company is going to pay and may give you other information, such as whether your annual deductible has been met. They seem important, and they are, but only for a limited time. Once the insurance company has paid your medical provider and your balance due at your provider is zero, feel free to shred these documents.
As a general rule, keep medical bills for a year. Your insurance company may ask you to provide proof of a medical visit. You can also deduct medical expenses on your taxes if they exceed ten percent of your adjusted gross income (AGI), in which case you’ll want to keep them for three years.
Keep electric, gas, phone and other utility bills for one year before discarding. The exception is if you claim a deduction on your taxes for a home office; in that case, keep those bills for three years.
Keep these until the end of the year, then compare them to both your W-2 form and your Social Security statement. Once you’ve matched them up, shred those stubs.
Credit Card Statements
At a minimum, keep them until you’ve confirmed that there are no suspicious charges and payment has been received. Keep for three years if you need them to substantiate tax deductions.
Wills and Estate Planning Documents
Having too many copies floating around can be confusing, especially if you’ve updated your estate plan over the years. Keep originals in one safe place, and let your loved ones know where that safe place is. Shred any outdated estate planning documents. To be on the safe side, consult first with your estate planning attorney if you’re not absolutely certain an estate planning document is outdated.
If you’re interested in learning more about managing your financial information, or have questions about estate planning, elder law, and probate and trust administration, contact us to schedule a free initial consultation.