Your Funds

A friend of mine recently held a “moving party,” inviting a bunch of friends not to say “bon voyage” but to actually help move her into new digs just one town away.

When the time came to start working, the hostess directed me to start with a big filing cabinet. It was filled with files stuffed with papers, mostly old bills, checks, bank statements and tax returns. As I started to remove the drawers so I could move things more easily, she stopped me and told me she didn’t want to “move one unnecessary scrap of paper,” and she was leaving me to decide what she had to keep and what could be bagged up and taken to a shredder or incinerator.

Still the job was easy, and much less daunting than my friend expected.

Most people keep too much paperwork around because they don’t know what to get rid of and don’t have a plan to trim the excess. That applies not only to papers but to personal information online and on their devices.

Whether you’re waiting for a move or cleaning up annually — I prune papers each year after putting my latest tax return into the files — here’s a quick rundown on what to keep and what to junk, both in terms of paperwork and computer files:

Tax records: You can reduce tax returns to several small stacks of paperwork, or a thin folder, provided you’re not filing fraudulent returns (with no statute of limitations in fraud cases, old backup paperwork actually could help).

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Old tax returns — especially from years when you bought or sold property — can be important for compiling future returns, possibly decades into the future. Thus, keeping return documents in perpetuity is prudent, though not necessary when returns are decades old and several residences in the past; most tax preparers keep copies of your documents for the life of your advisory relationship, so you may have backup there too.

Your “support documents” — bills, receipts, tax forms on which you based your math — must be kept for three years after a return is due. Thus, when you put your 2018 return in the filing cabinet, you can purge the bulging file of stuff from the 2014 return (filed in 2015, so the three-year holding period has passed).

If you’re cautious and have multiple sources of income, keep forms related to income (like 1099s and W-2 forms) for six years, the time the IRS has to challenge returns on which it believes gross income was underreported by 25% or more.

Investment papers: Beginning in 2011, brokerage houses and investment firms provide cost information on stock purchases, mutual funds, options, bonds and other securities.

That means you can get rid of old trading confirmations, but don’t be too quick to set them ablaze. Financial-services firms had to establish/maintain records beginning in 2011 for stocks, 2012 for mutual funds, etc., but some firms don’t have data on purchases made before the rules, especially if you have holdings that have been in the portfolio for decades.

Most firms will work with customers to build records from the past; once their accounting reflects the papers you saved, you can consider the numbers reliable and get rid of the backup junk.

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Beyond trading confirmations, shred investment papers you don’t need. Year-end statements show yearly transactions, allowing you to examine a year’s worth of activity on one paper while discarding all monthly/quarterly documents except that last one; files get a lot slimmer when your annual activity is summarized on one paper.

Pay stubs, bank statements, canceled checks and consumer bills/receipts:

Your last paystub of the year or of your time with the employer is useful for cross-checking tax reporting, getting the value of donations made through payroll deductions and, depending on circumstances, recording the amount of money you paid for health-care coverage; all the rest — provided you got what you are entitled to and there are no disputes — have no value whatsoever.

Canceled checks today generally are mini images on a bank statement. You don’t need to keep records showing that you bought groceries or made a copay at the doctor’s office in 2010 or, worse, 1997. You should have clipped images with tax ramifications — charitable contributions, mortgage or tax payments, home improvements, medical expenses and the like — making your support documentation. Clip those few images and balance your checkbook — or, more likely, just accept what the bank says about your account — then shred the rest.

Old credit-card statements, utility bills, department-store and service-station charge-card bills and the like also get shredded in most circumstances. Anything covering tax-deductible expenses — like electric bills for an office at home where you deduct utility costs — is a support document. If you used a credit card to pay for home-improvement expenses — which have tax implications — you’ll want to squirrel that record away for use when you sell the home someday.

There are a few special situations. In divorce cases, records can be important in determining who pays a child’s bills and, therefore, gets to claim a dependent on tax returns. Warranties and buyer-protection plans — where the date of purchase is important — are worth keeping while they are in force. Keep bills on which there were disputed charges, fraudulent card use or other problems — along with notes on how and when those issues were resolved — just in case any negative information from the incident shows up on your credit report.