We all need to declutter and organize our paperwork periodically. But before you grab the shredder, it’s important to know which papers and statements you should save and which ones you can toss.
In the past, people typically stored all their important documents in a file cabinet, meticulously organized into labeled folders. However, these paper records were vulnerable to destruction from events like floods, theft, or fires. Today, many consumers leverage technology to keep their documentation secure. A common practice is to electronically scan paper documents and save digital versions for future reference.
However, technology is not fail-safe. Beverly Harzog, credit card expert and author of “Confessions of a Credit Card Junkie: Everything You Need to Know to Avoid the Mistakes I Made,” recommends making sure that you back up your electronic documents by copying the files to a service such as Dropbox, back up on an external hard drive or use an offsite backup service.
“I had a computer crash last year and since I only have online statements, I would have been lost without the backups,” says Harzog.
Here are five types of documentation that you need to save, and how long you should keep your various paperwork.
Credit card and bank statements
John Ulzheimer, a credit expert and the president of consumer education for CreditSesame.com, advises keeping all bank and credit card statements for at least one year. You have several convenient options for saving these: you can retain emails containing online statements, capture screenshots of your online statements, or scan and save copies of your paper statements.
“You can most likely get the statement from your bank or credit card after that, if you need it,” Ulzheimer says.
Cardholder agreements
Many people stuff their credit card agreements in a drawer or accidentally toss them. But if you have a question or there is a dispute, having your cardholder agreements on hand can be essential.
“You should also save your cardholder agreements and any changes to your agreements that are mailed to you. They outline your rights and any changes to the terms of your credit card accounts,” Ulzheimer says.
Be sure to date each agreement so that you know which one is the latest version.
W-2 forms
Ulzheimer also recommends saving copies of your W-2 each year and holding them until at least retirement age.
“They illustrate your salaries over time, which is used to determine the amount you have paid into the Social Security system,” he says. “Don’t assume the SSA is going to get it right. You’ll receive an up-to-date statement from the SSA from time to time, and you’ll want to make sure that they have the correct amounts per your W-2s.”
Tax returns
Michael Carney, president of MWC Accounting, says that you must save your federal tax returns for three years since that is the amount of time that the IRS can go back and audit.
“However, the date starts from when you file, so if you file for an extension and file late, then the clock starts from your filing date,” says Carney.
Each state has a different statute of limitations, which sometimes differs from the federal guidelines, Carney says.
“You need to check the laws for your state before you toss out your state tax returns,” he adds.
Receipts for expenses and deductions
When audited, you’ll need to justify every expense and deduction. Carney suggests writing the expense, who it was with, and the business purpose directly on each receipt, then scanning it into an organized digital folder.
“Lots of people say that they will go back through credit card and bank statements to determine their expenses, but few people actually do that,” says Carney. “If you ever find yourself in a position of having to answer the IRS during an audit, it is much better to have proof to support your deductions than trying to remember.”
By carefully organizing and reviewing each document, you’ll ensure you have all the necessary paperwork ready if you’re ever audited or discover a financial discrepancy. Plus, by saving only what’s essential, you’ll free up space in your file cabinet and on your computer.
Frequently asked questions
Are digital credit card statements legally valid?
Yes, in the United States, digital credit card statements are generally legally valid. This is largely due to the Electronic Signatures in Global and National Commerce Act (E-Sign Act), a federal law passed in 2000.
The E-Sign Act grants electronic records and signatures the same legal validity as their paper counterparts, provided certain conditions are met. These conditions typically include the consumer’s affirmative consent to receive electronic documents and the ability to access and retain the information. Financial institutions are required to provide consumers with clear disclosures about their rights and options regarding electronic statements.
Is it safe to throw away old credit card statements?
It’s generally safe to dispose of old credit card statements, but how you dispose of them and for how long you keep them are crucial.
Most financial experts recommend keeping statements for at least 60 days in case you need to dispute a charge (due to the Fair Credit Billing Act). However, you might need to keep them longer if:
- They contain tax-related expenses: The IRS can audit returns for up to three years, or even six years in some cases, so keep relevant statements for that long.
- You’re tracking business expenses: Keep these for tax purposes, often for several years.
- You have a pending dispute: Hold onto the statement until the issue is fully resolved.
- There’s an extended warranty: If your card offers extended warranties on purchases, keep the statement as proof of purchase for the warranty period.
When you do dispose of them, always shred them. Credit card statements contain sensitive personal and financial information that identity thieves could use. Simply throwing them in the trash or recycling bin puts you at risk. Many people opt for digital statements to avoid the hassle of physical storage and shredding.
How long do credit card companies keep records?
Credit card companies are generally required to keep records for a minimum of seven years for credit card statements. This is often driven by regulatory requirements, particularly those related to tax purposes and potential audits.
Beyond this minimum, some financial institutions may choose to retain records for even longer, and the specific retention period can vary depending on the type of record (e.g., applications, disputes, specific transactions) and the governing regulations. However, for standard credit card statements, seven years is a common guideline.
