Cash News
In an increasingly online world, maintaining files of paper documents may feel unnecessary. But when it comes to your finances, hanging on to important documents can be extremely helpful, and even necessary.
Whether you receive digital bank statements or paper ones, keeping them organized and accessible can make your life much easier.
For example, reviewing past bank statements can help you analyze your spending and create an accurate budget. It can also help you dispute fraudulent charges, prepare accurate tax returns, or prove your income when applying for a loan.
You should generally save your bank statements for one year, but there are exceptions to that rule. Read on to learn how long you should save bank statements and other financial documents, how to store them, and how to dispose of them.
General guidelines suggest saving your bank statements for one year. After that, you can safely dispose of them. However, one major exception is bank statements that include tax-deductible expenses, like donations or business expenses. The IRS recommends keeping most tax-related documents for three years (or longer, for certain types of documents).
Keeping bank statements for one year may seem excessive, but there are several reasons why doing so is a good idea. For example, keeping at least one year’s worth of bank statements can help you:
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Budget: Some expenses ebb and flow throughout the year, making each month’s spending look different. Analyzing your bank statements for an entire year can help you create a comprehensive budget that incorporates these irregular expenses.
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Catch and dispute fraudulent transactions: Reviewing bank statements on a regular basis can alert you to fraudulent transactions. Hold on to bank statements until disputes are settled.
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Apply for a loan or apartment: When applying for a personal loan, mortgage, or apartment, you generally have to provide supporting documentation, including bank statements, proving your income.
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Accurately file your taxes: Your bank statements provide documentation of tax-deductible expenses. And for the self-employed, bank statements can provide an accurate record of your income. Keep any tax-related bank statements for at least three years.
While keeping your statements for one year is a general guideline, it can’t hurt to ask an accountant or tax professional for specific advice based on your situation.
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These days, many people choose to receive digital bank and credit card statements instead of paper ones. Some banks even waive monthly maintenance fees for choosing e-statements over paper statements. However, some people prefer reviewing paper statements each month. And either is fine, as long as you properly store and organize them.
Many banks allow you to access digital statements from the past several years. Some major banks, including Wells Fargo, Chase, and U.S. Bank, provide access to up to the last seven years’ worth of account statements. If you’re unsure how long your bank keeps statements accessible, call and ask.
Many banks’ online platforms also allow you to download statements and print them if needed. If you download your statements, make sure they’re password-protected.
If you prefer receiving paper statements, organize them chronologically and store them in a secure file system or a safe.
The end of the year is a good time to sort through your files and get rid of bank statements that are more than a year old (or in the case of tax-related statements, more than three years old). You can also get rid of old statements after filing your taxes, at the beginning of the new year, or whenever makes sense to you.
Getting rid of digital bank statements is relatively simple. If you’ve downloaded any files, simply delete them, then empty your trash.
If you’ve been keeping paper statements, you shouldn’t just toss or recycle them. Instead, you’ll need to shred them to make sure no one can access your account information. Don’t have a personal shredder? FedEx, UPS, and office supply stores offer shredding services.
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According to the IRS, you should keep any supporting tax documents for seven years if you file a claim for a loss from worthless securities or bad debt deduction. There are also other types of documents you may need to keep for seven years or longer, such as documents pertaining to property you own, insurance policies, or debts.
As long as your bills are accurate and you don’t have any outstanding disputes with your utility companies, you generally don’t need to hold on to household bills. However, if a bill contains a tax-deductible expense, like a phone line you use for work, file these bills with other tax-related documents and keep them for at least three years.
Generally, the IRS suggests keeping tax-related documents for three years, which in most cases is how long the IRS has to perform an audit. However, the IRS suggests holding on to any documents supporting a claim for a loss from worthless securities or bad debt deduction for seven years. And if you underreport your income by more than 25%, the IRS has up to six years to perform an audit — in which case you’ll need supporting documentation.
Generally, you can treat credit card statements like bank statements and hold on to them for a year. However, if there’s a charge you need to dispute, hold on to that statement until the issue has been resolved. And as with a bank statement, hold on to any credit card statements that include tax-deductible expenses for three years.