Q: How long should we keep items of importance, i.e. Income tax returns, bank statements, credit card receipts, and what should we shred?  Also, how do we decommission a computer before getting rid of it?

What a great question for this time of year as tax season approaches! Each of us probably has a stack of documents we are gathering in preparation of filing our taxes, and some of us may even have years’ worth of previous filed tax returns lurking in our filing cabinets. So, how long should we maintain these documents? 

The rule of thumb on income tax returns has been to maintain them for seven years and then shred them because they contain your social security number. If you owed taxes, it is recommended that you keep tax returns indefinitely with proof that you filed and paid. 

The following items should be kept indefinitely: IRS forms that were filed when you made nondeductible contributions to a traditional IRA or Roth conversion, any retirement and brokerage account annual statements and receipts for capital home improvements (until you sell the home). All of these items should also be kept for tax purposes. Brokerage statements proving cost basis of an investment you still own should also be kept indefinitely, unless you bought it in 2011 or later, because the brokerage now tracks that for you.

Keep receipts for large purchases for insurance purposes in the case you have a loss and have to prove replacement cost/value of the items.

Scanning and storing some paper documents electronically may be a preferred option for some of us to organize our files. The following is a list of items recommended to maintain in paper form only, as it should not be stored electronically.

• Birth certificates
• Death certificates
• Citizenship papers
• Custody agreements
• Deeds and titles
• Divorce certificate
• Loan/mortgage paperwork
• Major debt repayment records
• Marriage licenses
• Military records
• Passports
• Powers of attorney
• Stock certificates
• Wills and living wills
• Anything with an original signature
• Anything with a raised seal

Items that are recommended to be shredded are any documents that have your social security number or a financial account number on. It is recommended that we maintain ATM receipts and bank deposit slips for a few days, until the funds appear in your account. After a month you can go ahead and trash receipts for things you bought, unless you need it for warranty.

Keep credit card statements if you need to maintain them for a tax related expense. 

Maintain paycheck stubs until you have them reconciled with your W-2, 1099, tax-reporting statements and/or proof of charitable contributions. The IRS has three years to audit you unless there’s a chance you had underreported your income or they suspect fraud.

For decommissioning a computer and the documents stored in it, it’s not as easy as just erasing everything, or even pulling the hard drive and smashing it with a hammer in the driveway. It is recommended to remove the hard drive and either have a company professionally shred it or take it to someone with a  drill and have them drill four to ten holes into the hard drive to ensure it is completely unreadable. 

In summary, for those of us that like to hold on to documents, it is best for us to focus on maintaining documents for our taxes and insurance purposes. If the documents are not needed for these purposes we may want to give stronger consideration to letting them go.

Thank you for another great question, keep them coming!