A friend of mine recently held a “moving party.” When the time came to start working, the hostess directed me to start with a big filing cabinet.
It was filled with files stuffed with papers, mostly old bills, checks, bank statements and tax returns. As I started to remove the drawers so I could move things more easily, she stopped me and told me sweetly that she didn’t want to “move one unnecessary scrap of paper,” and she was leaving me to decide what she had to keep and what could be bagged up and taken to a shredder or incinerator.
My immediate reaction was a simple one: “Everything must go,” but I knew that the task would actually involve looking at the papers and deciding what was important.
Still the job was easy, and much less daunting than my friend expected.
Whether you’re waiting for a move or cleaning up annually, here’s a quick run-down on what to keep and what to junk, both in terms of paperwork and computer files.
Tax records: Old tax returns — especially from years when you bought or sold property — can be important for compiling future returns, possibly decades into the future. Thus, keeping return documents in perpetuity is prudent, though not necessary when returns are decades old and several residences in the past; most tax preparers keep copies of your documents for the life of your advisory relationship, so you may have back-up there, too.
Your “support documents” — bills, receipts, tax forms on which you based your math — must be kept for three years after a return is due. Thus, when you put your 2018 return in the filing cabinet, you can purge the bulging file of stuff from the 2014 return (filed in 2015, so the three-year holding period has passed).
If you’re particularly cautious and have multiple sources of income, keep forms related to income (like 1099s and W-2 forms) for six years, the time the IRS has to challenge returns on which it believes gross income was underreported by 25 percent or more.
Investment papers: Beginning in 2011, brokerage houses and investment firms now provide cost information on stock purchases, mutual funds, options, bonds and other securities.
That means you can get rid of old trading confirmations, but don’t be too quick to set them ablaze. Financial-services firms had to establish or maintain records beginning in 2011 for stocks, 2012 for mutual funds, etc., but some firms don’t have data on purchases made prior to the rules, especially if you have holdings that have been in the portfolio for decades.
Beyond trading confirmations, shred investment papers you don’t need. Year-end statements show all transactions for the year, allowing you to examine a year’s worth of activity on one paper while discarding all monthly or quarterly documents except that last one.
Pay stubs, bank statements, canceled checks and consumer bills or receipts: Your last paystub of the year or of your time with the employer is useful for cross-checking tax reporting, getting the value of donations made through payroll deductions and, depending on circumstances, recording the amount of money you paid for health care coverage; all the rest — provided you got what you are entitled to and there are no disputes — have no value whatsoever.
Canceled checks today generally are mini images on a bank statement. You should have clipped images with tax ramifications — charitable contributions, mortgage or tax payments, home improvements medical expenses and the like — making your support documentation.
Old credit card statements, utility bills, department store and service station charge card bills and the like also get shredded in most circumstances. Anything covering tax-deductible expenses — like electric bills for an office at home where you deduct utility costs — is a support document. If you used a credit card to pay for home improvement expenses — which have tax implications — you’ll want to squirrel that record away for use when you sell the home someday.
There are a few special situations. In divorce cases, records can be important in determining who pays a child’s bills and, therefore, gets to claim a dependent on tax returns. Warranties and buyer-protection plans — where the date of purchase is important — are worth keeping while they are in force. Keep bills on which there were disputed charges, fraudulent card use or other problems — along with notes on how and when those issues were resolved — just in case any negative information from the incident shows up on your credit report.
Documents stored on electronic devices: If you wouldn’t keep a paper copy, you don’t need an electronic one. That said, make sure your platforms and cloud storage is secure; don’t scan an important document on your smartphone and keep the picture there, unsecured, for months or years.
Passwords: This isn’t “cleaning,” so much as “maintenance,” but several surveys have shown that at least two-thirds of people never change passwords or use one password for all accounts.
Pick strong passwords, and make sure any “security questions” could not be answered by glancing at your social media accounts.