When To Toss Financial Records

One of your New Year's resolutions may be to clean house. By the end of the year, there may be old clothes, broken furniture and other stuff that needs to be thrown out. And, since so much of your personal business may be done online, you may even be tempted to get rid of financial paperwork.

Kim Lankford, a contributing editor at Kiplinger's Personal Finance magazine, tells The Early Show co-anchor Harry Smith the inclination to discard piles of bank statements, receipts and investment records may be correct, but not necessarily in all cases. Tossing some financial records may reduce clutter now, but could cause problems later.

Lankford points out that new banking rules that became effective this year change may change how you file your bank statements.

She also notes that it's a great time to get a head start on gathering your tax paperwork, instead of scrambling to find everything at the last minute and missing out on valuable deductions.

Lankford provided answers to some common questions about knowing when to hold financial documents, and when to fold them – and toss them.

A LOT OF PEOPLE KEEP THINGS FOR POSSIBLE TAX AUDITS, AND SOME JUST DON'T WANT TO GET RID OF SENSITIVE INFORMATION, ESPECIALLY IN LIGHT OF IDENTITY THEFT CONCERNS. WHAT DO WE NEED TO KNOW ABOUT THROWING AWAY OUR FINANCIAL DOCUMENTS?

In general, things tend to be redundant. Once you get year-end reports, it's a great time to throw away your monthly statements. Compare the original monthly statements with the year-end records to make sure they are accurate.

WHAT'S THE BEST WAY TO DISCARD THESE PAPERS?

This is a good time to get a shredder. Trash can be very valuable to thieves, especially papers that have credit card numbers and Social Security numbers on them. But ATM receipts are not that big a deal.

WHAT ABOUT BANK RECORDS?

Toss ATM receipts after your bank statement arrives and you've made sure everything matches up.

Because of "Check 21," the check-processing laws that took effect this year, your banking records look different than they did in the past. You probably aren't receiving your canceled checks anymore, but you may get images of the checks with your statements, or you can download them from the bank's Web site. Now is a good time to print out and keep copies you may need for tax purposes, such as ones you'll have to have on hand to document charitable contributions or business expenses. If you paid the bills online, your bank statement showing who the money was transferred to can count for tax purposes.

SO YOU SHOULD PRINT AND KEEP THE CANCELED CHECKS, BUT WHAT ABOUT THE BANK STATEMENTS THEMSELVES?

You need to keep the statement if you are paying bills online -- and especially if any of those bills are going go toward tax deductions. A lot of people now pay their bills online, and your bank statement is really the only record of those online transactions.

This is also a good time to review your statements for errors -- especially unusual fees.

You can throw them out once you've reviewed them. But if your bank statements become part of your supporting documents on your taxes, keep them for at least three years.

WHAT ABOUT TAX RECORDS?

KEEP TAX RETURNS, BUT TOSS SUPPORTING DOCUMENTS AFTER 3 YEARS

It's a good idea to keep your returns forever, but you can generally toss your supporting documents three years after you filed your taxes. You're usually safe from being audited after that time, unless you forgot to report a big chunk of your income. If you have any self-employment income, keep the records for at least six years.

CAN YOU GIVE US AN EXAMPLE OF "SUPPORTING DOCUMENTS"?
If you are self-employed, you should keep the credit card receipts or any supporting evidence of business expenses.

Hold on to W-2s for 3 years.

HOW ABOUT INVESTMENTS-RELATED PAPERWORK?

KEEP YEAR-END INVESTMENT STATEMENTS

Keep records showing what you originally paid for mutual funds and stocks until you sell them and report the gain or loss on your taxes. Also, hold onto your year-end statements showing how much you received in dividends or capital-gains distributions, so you won't end up paying taxes on them twice. You can toss your monthly statements if everything matches up with your year-end report.

HOME-IMPROVEMENT RECORDS

KEEP HOME-IMPROVEMENT AND MORTGAGE BILLS FOR TERM OF HOME OWNERSHIP

Since most homeowners can now keep their home-sale profits tax-free, they don't generally think to keep home improvement records anymore. But it's still useful to hold onto the receipts, because you could end up paying a tax bill when you sell your home if you have lived in it for less than two years, if you end up renting out part of it, or if you end up with more than $250,000 in profit if single or $500,000 if married. All home improvements that add value to your home (not just regular repairs) can lower your tax bill. The information can also help document the work you've put into the house when you go to sell it.

HOW LONG SHOULD YOU KEEP HOME-IMPROVEMENT RECORDS?

If you make big home improvements that add to the value to the house, you should keep them for as long you own the house.

CREDIT CARD STATEMENTS

Throw them away as soon as your payment is posted on the next month's bill, unless you need to keep them for your tax records.

WHEN CAN YOU TOSS YOUR CREDIT CARD RECEIPTS?

Toss them if they have appeared on the credit card statement, after making sure they match your statement. But also, before throwing them away, think carefully if they are going to be included as a business expense.

UTILITY RECEIPTS

Toss them as soon as the next month's statement shows that you paid the bill, unless you're deducting them as a home-office expense.