April 20, 2022
When it comes to your finances, it’s important to be organized and keep track of your bank statements, tax returns, and other financial documents. But how long should you hold on to these documents?
In this blog post, we’ll provide some tips on how long to keep bank statements, as well as other types of financial documents, and give you some advice on when it’s time to shred them.
How Long to Keep Bank Statements
Apart from providing proof of payment in case of a dispute, access to your most recent purchases, bill payments, and payroll deposits is required for a variety of reasons, which is why keeping your bank statements is quite an important thing to do. But how long should you keep bank statements? Although this is determined by a variety of factors, generally speaking, you should keep them from one month to three years, depending on the type of document in question:
Keep a Month (Regular Statements and Pay Stubs)
Keep a digital or hard copy of your last month’s bank and credit card statements for reference. If you go paperless, make sure to save your digital versions online. You should also keep pay stubs so that you may use them to verify the accuracy of your Form W-2 when tax season arrives.
Keep a Year (Utility Bills, Deposits, Withdrawal Records)
If you’re self-employed, asking yourself ‘How long do we have to keep business records?’ may be crucial since you may need your utility, cable, and cell phone bills for tax purposes. However, you can dispose of them as soon as you verify your payment was processed, and dispose of bank withdrawal and deposit slips after verifying them with your monthly statement.
How long you should keep your bank statements will also depend on how you’ve received them:
- If you don’t have an online bank account but get bank statements in the mail, keep the paper for 12 months.
- If you have an online bank account and don’t receive paper statements, you may print them to keep them for a longer period of time. Usually, how long banks tend to keep credit card statements or similar documents is around a year (and up to three years depending on the bank). If you need statements for longer periods, you can contact the bank and request them, and the bank should send them to you by email or in the mail within days.
Whatever the case, you should review your statements at least once a month to ensure there are no unpleasant surprises.
|DID YOU KNOW: For extra safety, keep any hard copy of your bank records stored in a fireproof safe in a secure location. In case your statements are electronic, use password protection for the files in which they’re stored.|
How Long Should You Keep Tax Returns?
Wondering how long should you keep tax returns? Your tax returns are vital documents to maintain as part of your financial history. You’ll want a permanent electronic form or hard copy of each year’s tax return and any payments you make to the government. It’s also a good idea to keep track of important financial occurrences, such as legal actions or inheritances, by keeping paperless statements that you can access online at any time and store them securely there.
In most circumstances, the answer to how many years of tax returns should you keep is a minimum of three years. You should keep any supporting tax documentation for 3–7 years from the date you filed or the due date of your tax return, whichever is later.
The IRS may be able to ask you for supporting documentation for three to seven years after you file a return, so a good rule of thumb is to keep any document that confirms the information on your tax return—including Forms W-2 and 1099, bank and brokerage statements, tuition payments, and proof of charitable donation—for at least three years.
The following list contains the key information in regards to how long to keep personal tax returns, according to the period of limitations that applies to income tax returns:
- If situations (4), (5), and (6) below don’t apply to you, keep your tax records for three years.
- If you file a claim for credit, or refund after filing a return, keep records for three years from the date you submitted your original return or two years from the date you paid the tax, whichever is later.
- If you make a claim for a loss from worthless securities or a bad debt deduction, keep records for seven years.
- If you don’t disclose income that you should report, the period of how long do you have to keep tax returns is six years, if it accounts for more than 25% of your total gross receipts.
- If you don’t file a return, the IRS advises you to keep records indefinitely.
- If you file a fraudulent return, it’s better to keep your records indefinitely.
- You should keep employment tax records for at least four years after the tax is due or paid, whichever is later.
This list is a practical indication of how long you should keep tax returns, but you should always try to get a free tax consultation just to be on the safe side.
|DID YOU KNOW: When you own real estate, the answer to how long to keep personal tax returns is three years after selling the property and filing the related tax documents, including depreciation, amortization, and depletion deduction records, all of which influence whether you’ll realize a profit or suffer a loss when selling your property.|
|Generally speaking, you should keep bank statements from one month to three years, depending on the type of document in question.|
|It’s a good idea to keep all your important financial documents in electronic form so you can access them at all times.|
|The IRS may be able to ask you for supporting documentation for three to seven years after you file a return.|
|Even after you sell a property you own, you should keep all the tax-related documents for three years.|
Is There Any Reason to Keep Old Bank Statements?
Keeping records of recent purchases, bill payments, and payroll deposits is necessary for a variety of reasons, not only as evidence of payment in the event of a dispute. You should also make sure to make an “important papers to keep” checklist, and check your bank account activity frequently for evidence of identity theft and debit card fraud (though, to be safe, you should get identity theft protection from a reputable firm). Your bank statements can serve as proof of illegal conduct and be used to recover any damages, but you can need them for different reasons too. Here are some of them:
One of the most common reasons for needing bank statements is to have evidence of a source of income, deduction, or credit for the IRS.
When preparing your income taxes, you should check your bank statements to verify your earnings and expenditures like charitable donations and business costs. Knowing exactly how long do you need to keep bank statements for large transactions or payments may also be helpful, as you could need evidence of purchase to file an insurance claim or use a warranty, for example.
In addition to the IRS posing a limitation on income tax returns that restricts how long you have to amend your return, request a refund, or claim a credit, the IRS’s ability to assess extra tax is also restricted by the period of limitations.
Being unable to get access to your bank statements because you’re not familiar with the IRA record retention rules can cause you problems when trying to claim a credit or refund on your tax return. Furthermore, if the IRS determines additional taxes are owed and you know they aren’t valid, you’ll need bank statements to demonstrate this.
Other Reasons to Keep Your Bank Statements
- Keep bank statements on hand in case you need them for future lenders, landlords, or other parties with whom you’d want to establish a financial relationship that may request to see your bank records to prove your income when determining if you can afford loan payments, a rental home, or anything else.
- You should know how many years of taxes and other bank statements you need to keep, as they can help you in documenting payroll deposits or verifying your 1099 income.
- Use your bank statements to monitor mortgage payments, educational loans, and tuition costs.
- To create a detailed list of your investment income and losses, as well as retirement account contributions or distributions.
- To keep a record of your business expenses, etc.
Why You Should Shred Certain Documents
When it’s time to discard your documents such as statements, bills, or pay stubs, don’t just throw them in the garbage, as they contain personally identifiable information (PII). Apart from knowing how long to keep pay stubs and other papers containing PII, you should also know how to properly dispose of them for several reasons:
Identity Theft Protection
Instead of throwing them away intact, you should securely shred these documents because identity thieves might be able to discover your sensitive data this way. If someone gets their hands on your old bank statements or tax returns, they could use that information to open new accounts in your name.
Another reason to shred documents is to protect your privacy. If you’re throwing away old utility bills or pay stubs, you don’t want anyone going through your trash and seeing that information.
Freeing Up Space
Finally, after sorting what receipts to keep for taxes, you’ll probably have a pile of old papers around, so shredding all documents you don’t need can help you declutter your home or office.
|DID YOU KNOW: Some people take their documents to a NAID AAA Certified shredding facility to make sure that the documents with their information will be destroyed securely, since the firm takes multiple actions to ensure meeting industry security standards, so you don’t have to worry.|
Knowing exactly how long you need to keep tax returns and bank statements can help you avoid any financial document-related issues down the road. In addition, knowing when it’s time to shred them can help you stay organized, as well as protect yourself from any inconveniences, such as identity theft, card fraud, etc.
The IRS recommends that you keep your records for at least three year, but that depends on the type of document in question. If you’re self-employed, you should keep them for six years. This includes all of your documents, such as bank statements, W-2 forms, and receipts.
The general rule for how long should you keep bank statements is one year. However, it may be smart to keep all documents that verify data on your tax return—including Forms W-2 and 1099, bank and brokerage statements, tuition payments, and charitable contributions receipts—for three to seven years.
Keeping your bank statements can be helpful for tracking your expenses and budgeting, as well as for some tax-related reasons. In addition, after making any large or unusual transactions, it may be wise to hang on to those documents, as well.
Documents that include your personal information should never be disposed of insecurely. After the period of how long to keep bank statements expires, make sure to shred all documents that contain your personal information in order to protect yourself from fraud and identity theft.
As banks are only required to keep records of deposits and withdrawals for six years, once the seventh year rolls around, you can safely shred your bank statements and canceled checks.