Tax Season is Over! Now to Organize Financial Documents


Purging old documents and setting up a new financial system can keep you organized and help make next year’s tax preparation so much easier.

Financial Documents: What to keep and for how long? Luckily, there are some very clear rules and reasons for retaining financial documents.

Phew! You’ve filed your tax return and satisfied Uncle Sam for another year. Now is a good time for some spring cleaning, and not just for next year’s taxes. Perhaps you’ve hung on to all the “financial stuff,” but much of it seems like clutter. You probably don’t need that shoebox full of old receipts, but where do you draw the line?

Luckily, there are some very clear rules and reasons for what to keep and for how long. These guidelines apply to both electronic records and paper records and cover standards for storage and disposal. Purging old documents and setting up a new financial document system can keep you organized and may make next year’s tax preparation so much easier. A well-organized system could also ease stress during events or decisions that require you to quickly locate important documents.

Let’s begin with two key questions you need to ask yourself when reviewing all of your tax documents: Will I ever need this information in the future? And, How long do I need to keep this? Find your answers below.

Plenty of documents get a “yes,” or at least a “maybe,” to the top-level question of: Will I ever need this information in the future?  The next question offers structure for organizing and maintaining your financial records: How long do I need to keep this? Find your answer in the following four categories.


Keep permanently

Documents related to major life events, proof of identification, and transactions can be difficult to reproduce and important for a long period of time. Items to keep forever include:

  • Birth certificates
  • Social security cards
  • Passports
  • Marriage licenses
  • Divorce decrees
  • Death certificates
  • Estate planning documents – Attorneys generally keep the original signed documents, but you should receive and retain a copy.
  • Life, disability, and long-term care insurance policies
  • Loan documents – Keep all records while still repaying. After that, retain the letter from the lender indicating the debt is paid in full (preferably along with a few key documents).
  • Property records – Include closing paperwork, home insurance policies, and home improvement records, until you have sold your house and completed the taxes for the year of the sale.
  • Automobile records – Retain car titles and auto insurance documents until you sell the vehicle.
  • Military discharge papers


Keep for seven years

You may have heard that the IRS could audit your tax return as far back as seven years. Generally, audits don’t go past the prior three years; however, if an auditor finds a significant error it may extend further back. The conventional seven-year rule of thumb applies to these items:

  • Tax returns
  • Estimated tax payment records
  • W-2 statements, 1099 forms, K-1 schedules, and any other tax reporting documents
  • 529 account contribution and distribution documents
  • Charitable donation receipts
  • Property tax bills
  • Mortgage statements
  • Receipts for any other deductions taken


Keep for one year

You may need to refer to these records over the course of a year:

  • Monthly bank statements
  • Monthly brokerage account statements
  • Credit card bills – Review these carefully upon receipt to ensure accuracy. If there’s a tax-related charge, retain that particular bill using the seven-year rule.
  • Pay stubs – Compare your end-of-year paystub with your W-2 each year to ensure they match.


Keep for one month

Save these items just long enough to verify the accuracy of monthly bills and statements:

  • ATM and bank deposit slips – Compare to your monthly bank statement.
  • Monthly bills – Compare to the next bill to ensure that the previous payment was properly credited.


Store and dispose of financial documents safely

In this age of identity theft and privacy concerns, meeting high standards for information security is critical when storing or disposing of financial documents.

  • For storing physical documents, choose an out-of-the-way location in your home that has the best possible protection from damage (fire, water, etc.) or theft. To improve security, especially for records in the “permanent” category, install a home safe and be sure to record the combination in a secure location or format.
  • For disposing of physical documents, shred everything that contains an account number or any kind of identifying information. I strongly suggest purchasing a shredder – having one at home will help you keep on top of clutter and, and more importantly, help you avoid the temptation to just tear up the paper document and toss in the regular garbage or recycling bin. As an alternative to purchasing a shredder, many office supply and shipping stores will provide this service for a fee.
  • When storing digital records, protect all files with passwords and back up all electronic records on a regular basis. Make sure your passwords are complex and change them periodically. Check that your computer has up-to-date antivirus software. If you’re considering cloud storage for backing up your digital records, make sure the provider uses secure encryption technology.
  • For disposing of digital records, the best way to delete the files is to physically destroy the hard drives they were stored on. So, whenever donating, selling, or giving away computers, it is always advised to remove the hard drive first.

“The secret of getting ahead is getting started,” Mark Twain once said. How true that is. Organizing financial documents may seem like a daunting task at first, but once you get your system set up, you’ll reduce the time and frustration spent looking for documents and you’ll free up space – a valuable commodity – in your home. Next year, when you are pulling together your tax information, that task will be a snap! Establishing an organized system for documents can pay big dividends when it comes to your financial wellbeing.

Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors.

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