Even in the age of computers, our society is far from “paperless.” In fact, the computers have managed to print enough paper to bury every human being hundreds of times over!

So the question arises: what records do I need to keep and what records can I destroy? While there are no hard and fast rules, here are some guidelines.

There are several reasons to keep records:

  • fear of an IRS Audit
  • concern that there will be a dispute with a creditor
  • fear of identity theft
  • as proof of ownership
  • various other reasons, such as divorce alimony and child support

With these reasons in mind, let’s take a look at some of the basic records and see what makes sense with respect to the “keep or toss” decision.

Income Records. Check stubs should be reviewed to make sure they adequately reflect the pay, deductions, benefits and contributions contained thereon. Once that is done, monthly stubs may be destroyed, and once the final year end stub is compared against the W-2 form that is received, it may be destroyed, unless the final stub contains tax deduction information that is not on the W-2. It may then be kept with tax records for that year.

Expense Records. If your expenses relate to your tax return, keep them for at least 3 years from the due date of a return, for federal purposes, and 4 years from such date for Wisconsin purposes. If you file a fraudulent return, you must keep such records forever, since there is no statute of limitations on fraudulently filed returns. If you have under-reported income by more than 25%, you will need to keep both the income and expense records for 6 years.

If the expense records are not for tax purposes, you may want to keep them 3 years anyway, since most creditor disputes would come up during this period, and most identity theft issues are discovered fairly quickly.

Tax Returns. Because tax returns contain information relating to the cost basis necessary to determine future gains and losses, and since many returns contain carryover losses, gains and other items, it would probably be a good idea to keep the returns themselves forever. However, much of the supporting documentation could be destroyed pursuant to the guidelines above.

Basis Evidence. Most people keep financial records showing their cost basis in everything from stocks and bonds to home improvements. This is done to accurately calculate gains when such items are sold, or basis to a donee if such items are gifted. While that is important, new laws will make some of this easier. Starting in 2011, brokerage firms will now start keeping cost information on stock purchases, and in 2013 for options, bonds and other securities. Some firms keep this information already, but are not required to do so. Consequently if your broker has such information, and if you stay with this broker, you may not need to keep such records. If in doubt, keep your purchase records until at least 3 years after the due date of the return upon which a sale is noted.

Credit Card Bills. These are actually no different than the expenses listed above: if they relate to taxes or basis, follow the rules above. If they relate to personal expenses, consider destroying such information after 3 years.

Other. Again, unless such items as bank statements, canceled checks, deposit slips and ATM advices have anything to do with a tax deduction or evidence of basis, they may probably be tosses after 3 years.

If you have any concerns about the retention of any documents, we are always willing to discuss your situation. Please contact us at Schober Schober & Mitchell, S.C. at (262)785-1820 or (262)569-8300.