Episode Transcript
[00:00:00] Hello and welcome to another episode of Financial s Nickens for bite-sized information for entrepreneurs. I'm your host, Elisa McCabe, and today we're going to be talking about financial documents, which ones you should keep, and for how long. So, recently I moved, I had been in my home for 15 years and moving made me take stock of what I had in my house and what I really don't need to take with me.
So I really, we were downsizing, so I had to really think about what am I going to take? So then I started looking through all my old filing cabinets and I realized how many paper files I had from when I first started First Steps Financial over 10 years ago. And this was back before we went paperless.
So, and it was funny because I was talking with one of my clients about moving, and she said, Oh my God, I have no idea what I should be keeping or throwing out. So then we started this discussion about [00:01:00] the importance of maintaining copies of your financial documents and working, you know, with your partner in case you have an audit.
So, you know, in the accounting industry we always talk about having, you know, different places to store things. Uh, typically three places. So, um, so. You know, it was funny because we, we were talking about, and, and she, my client was asking, so where, you know, what do we keep and, and what do we get rid of and, and how long do you keep these things?
And I let her know there are bank statements, tax returns, and any receipts she supplied to us are either inside of QuickBooks online or we Sure we. Store them in a secure online filing system called Share File, which is owned by Citrix and it's encrypted at rest and transferring documents and so, Since I had quite a bit of paper to move and I decided to get rid of it, um, I called around to find a mobile shredding company.
And if [00:02:00] you do this, this was such a great experience and I highly recommend it, but make sure it has a few qualities. Make sure that they are insured, make sure that they can provide you with a certificate of de of destruction, and that they are qualified to handle sensitive documents. So I found a place, they were amazing.
And then I went, had to go through all that paperwork and see which documents I wanted to keep and what documents I'm required to keep. So after doing some research, I, um, went onto the i r s website and I found some other sources too. And so this is what the, this is what I found and I'll give you some links.
Um, the IRS website link. And so, What it suggests is what documents do you keep for three years, your income tax returns? And then I I, there's a note from the i r s that I'll talk about, about the income tax returns. So you wanna keep all tax records and all related documents, your receipt, your bank statements [00:03:00] for three years from the date you file your return, or two years from the date you pay your taxes, whichever is later.
And so the i r S has a whole host of information, so it's income tax returns you wanna keep for three years, and then all the bank statements, receipts, and any income and expense documents that are related to those returns. So documents to keep for seven years loan documents. It is such a great feeling to pay off a loan.
Keep the documentation there. So if there's an error at the bank, you have proof of payment and closure of the loan and then keep it until it's no longer active. So keep active contracts, insurance documents, property records, stock certificates, keep all these items while they're active. After the contracts are completed or the policy, the insurance policy expires, then you can destroy [00:04:00] those documents.
So, There are certain items that you keep forever and those I recommend that you make. You keep them in three places, so you keep the original someplace, you make a copy of it, and then you store some, store it on the cloud, either on your computer or on the cloud, but just make sure it's secure so that you have access to it.
I highly recommend an encrypted file on the cloud because anything could happen to your computer and then you would lose it there. God forbid you have a fire in your home and it destroys the paper copies. And your computer, you can't get those things back, so things that you keep forever. Marriage licenses, birth certificates, wills, adoption papers, social security cards, death certificates, and this one surprised me.
Records of paid mortgages, I would think mortgage companies [00:05:00] have it all together, but apparently because of the payoff and anything associated with it, it is good to keep that one forever. So retain all of these documents online. You can scan them into your computer, like I said, or pay for a secure BA, cloud-based filing system, such as share file.
They aren't expensive and it is their business to keep these documents secured. Keeping your documents organized, you know, both online and with paper will give you easy access to them if you need them, or even better if you need to purge them. You know exactly what you're going to purge, and you also know what you need to keep.
So, I moved with so much less paper. I have empty filing cabinets that I don't even plan on filling up. So, um, some notes about, uh, tax returns from the I R s. I mentioned this before and I, this is something I wanted to be, um, keep [00:06:00] separate and talk to you about. So keep records for six years. If you do not report income, you should report so you know who you are.
I'm not even gonna talk about it. If it's more than 20, and if it's more than 25% of the gross income you show on your return. So if for some reason there was a year you didn't report some type of income and you know you didn't, Keep records of it because they can go back and they can make you produce that information.
And if you don't have it and you don't have the expenses that go with it, you can run into some real problems and then they can assume things. Keep records for seven years if you file a claim for a loss from worthless securities or bad debt reduction. Those things you need to keep for at least seven years, not the typical three years.
When you file a return, keep your records indefinitely. If for some reason you didn't file a return either [00:07:00] you forgot you were sick, you just couldn't get there, keep them. Keep records indefinitely if you file a fraudulent return. I know this seems silly, but. Really, um, if you've done something, you know, that you, you know, for whatever reason you filed a return that wasn't completely true, keep those records.
It's important. Keep employment tax records for at least four years after the date that the tax becomes due, or is paid, whichever is later. So that's something that you wanna keep if you're paying, you know, for employment tax records. And then, If you have any more questions about what paperwork to keep, um, and the tax shredder that, the paper shredder that I use who was amazing and it's mobile, comes to your home or office and will shred everything and actually lets you watch it.
It's kind of cool I got to watch on a camera of them dumping it into the truck and [00:08:00] shredding it. Uh, and any other questions you might have about what returns you should keep or where to store documents, we can certainly give some suggestions. Head over to our website, first steps financial.com, and you can email me Alisa at First Steps Financial and I look forward to talking to you.
