979. This week, Laura reviews how to tidy up your financial records and save space without violating IRS retention rules. She shares seven essential tips on which paper and digital documents to safely keep (like vital records and tax forms) or ditch, and for how long.
979. This week, Laura reviews how to tidy up your financial records and save space without violating IRS retention rules. She shares seven essential tips on which paper and digital documents to safely keep (like vital records and tax forms) or ditch, and for how long.
Find a transcript here.
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No matter if you’ve already gone completely paperless or still have a closet, garage, or attic filled with mystery financial documents, it’s critical to know which records to safely toss or keep and for how long. This post will review how to tidy up your recordkeeping and save space without violating IRS retention rules as we approach a New Year and tax season.
Welcome back to episode 979 of Money Girl–I appreciate you downloading the show! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, my Substack newsletter. Free subscribers automatically receive my Money Success Toolkit, which includes the exact templates I use to manage my finances.
You can learn more, ask questions, and sign up for the Money Stack for free at LauraDAdams.com. Or leave a voice message with your question or comment by calling 302-364-0308. I'd love to feature your question on Finance Friday, our weekly Q&A, bonus edition of the show!
7 tips for keeping and tossing financial records
I’ll confess–I used to keep just about every financial document that came into my hands because I thought I might need it later. I had plenty of space and a giant four-drawer filing cabinet where paper went in and rarely came out.
It’s been a while, but I mentioned on the podcast that I had to face this problem when my husband and I moved from Florida to California over a decade ago. Not only did that filing cabinet weigh a lot, and long-distance moves typically are priced by weight, but I also knew it was filled with really old documents we didn’t need to lug across the country.
That’s when I committed to going paperless and began shredding unnecessary documents like a madwoman. I probably filled 30 huge lawn garbage bags with confetti over a grueling weekend.
Now, I just have a few physical paper files that take up little space. I’ll review seven tips for keeping and tossing financial records.
1. Go paperless.
If you’re still receiving some or all of your financial documents by snail mail, such as bank account statements, investment statements, utility bills, or insurance policies, you should request to be a paperless customer. That saves time managing paper, reduces storage space in your home, and is better for the environment. Set a goal to eliminate all incoming paper to simplify your life and help avoid becoming a victim of identity theft. It’s easy for a thief to get your personal information from old-fashioned paper records.
If you can get a statement or bill online, you typically don’t need to keep a physical copy. However, there may be situations in which a financial institution offers free access to statements for a limited time. In that case, you can download e-documents to your computer or to cloud storage to save them, or print them later if needed.
I want to challenge you to continually pare down what you receive in the mail. Every time you open your physical mailbox and see paper you don’t want or need, contact the sender to be taken off their mailing list or, when possible, request to go paperless.
If you get a lot of junk paper mail for pre-approved offers like credit cards or insurance that you don’t want, visit OptOutPrescreen.com to get off lists maintained by the nationwide credit agencies. That site is free to use and is the official place where the credit agencies must accept and process consumers' opt-out requests.
2. Use online bill pay.
If you rely on receiving a paper bill to make a payment, consider using a bank’s free online bill payment service. That lets you get digital bill reminders and stop writing and mailing paper checks. Not only are paper checks costly, but they can also be stolen and increase your chances of becoming a victim of identity theft.
Online bill pay lets you pay any company or individual with a mailing address. The service sends money electronically, when possible, or prints and mails a paper check for you for free!
Many banks can request e-bills from the merchants you set up, like insurance companies and utilities, and act as a centralized hub for all your necessary payments. Or you can set up automatic payments, enter bills manually, and receive alerts when a bill is due or paid.
With online banking, you can see your pending payments, what your future balance will be after payments clear, and the payment history for each of your bills. Online bill pay is an excellent way to ensure all your bills are paid on time, so you eliminate late fees and boost your credit scores.
In addition, most banking apps allow you to deposit paper checks remotely by taking a photo of the front and back. The funds are typically credited to your account immediately, saving you a trip to the bank.
3. Know which paper records to keep.
For most people, there will be some paper documents you should keep. That’s only because they're impossible or difficult to replace if you lose the original. Even if you have a digital copy, I recommend safely storing the following paper documents:
Also, keep any tax-related documents that you may not be able to get online, such as:
In general, you should keep records related to real estate for a few years after you sell the property. You or your accountant needs them to report depreciation and capital gains (or losses) and to prepare any amended tax returns.
Consider storing essential paper records in a home safe or a fire-resistant, locking filing cabinet. For added protection, put your essential documents in an airtight plastic bag and also keep digital copies if the originals get destroyed.
4. Digitize your tax returns.
Speaking of taxes, the IRS allows you to keep digital copies of your tax returns and the supporting documents for your income and any tax deductions and credits you claim each year. In general, individuals must retain tax returns and supporting documents for at least three years. That's because you have up to three years to file an amended return or be chosen for a tax audit.
However, you can claim a loss for certain investments for up to seven years. So, if you have complicated transactions, such as the purchase or sale of investments or real estate, it's wise to keep your tax records for seven years.
While keeping seven years of taxes might sound like a lot, the good news is that digital files are easy to maintain. So, scan your tax returns or ask your accountant for a digital copy instead of adding more paper to your filing cabinet.
If you have a business, the IRS says you typically need to keep business tax records for a minimum of seven years. But they can be digitized, too.
5. Know how to reduce your taxes.
I mentioned tax deductions and credits, which are powerful ways to reduce your tax liability or increase your tax refund. So, here’s a quick primer and examples of valuable tax-related expenses and documents you or your accountant may need to keep.
A tax deduction is an amount you can subtract from your taxable income, which lowers your tax liability. For example, if your taxable income is $60,000 and you're eligible to claim $10,000 in allowable tax deductions, you only pay tax on $50,000.
A tax credit is a dollar-for-dollar reduction in the amount of tax you owe. For example, if you owe $5,000 in taxes, getting a $1,000 tax credit means you save the full amount and only owe $4,000.
For 2025, here are some of the most common tax-deductible expenses you may be eligible to claim:
RELATED: Maximize tax deductions–how a side gig or small business can lower your tax
6. Manage digital files wisely.
As you go as paperless as possible and digitize necessary financial records, you'll probably find that you only need a small drawer for essential documents. Just be sure to keep your digital files organized and secure.
For instance, consider keeping your digital records in multiple places so your information can't be lost in a computer crash or a fire. You might store them on your computer, a password-protected external hard drive, and in the cloud.
To stay organized, you could create a main folder for each year and subfolders for categories like taxes, investments, paychecks, and other documents you might need in the future. Add a layer of protection by requiring a password to access your main folder. And keep your computer's operating system up to date to ward off cybercriminals.
Once you create a plan for storing your documents, make sure your loved ones know where to find them in an emergency. In my experience, going paperless and organizing your digital files in multiple places makes you feel more in control of your finances.
7. Get professional advice.
If you’re unsure which personal or business documents you need to keep or for how long, ask a pro, like a tax accountant, attorney, or financial advisor. In addition to the documents I reviewed, you may have other records or contracts to keep for legal or business reasons.
To sum up, if you can get documents online, such as credit card statements, bank statements, and insurance policies, there's no need to keep them as paper or digital files. But when you have documents that aren’t permanently available online, such as deeds, titles, investment purchases, and real estate closing documents, keep the physical paper records for several years after you sell them.
In general, it's wise to keep your tax returns for at least seven years, especially if you digitize them and they don't take up any space. However, you need to keep the originals of certain vital records forever (or at least until you’re sure you no longer need them) and in a safe place. Some forever files include birth certificates, Social Security cards, Form 8606 for nondeductible retirement contributions, and documents with raised seals and notarized signatures.
Make getting financially organized a priority right now, or set it as a New Year’s resolution. You’ll feel more in control of your finances and save time so you can spend it doing something you enjoy.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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