If you're like most people, you spend more time organizing the closet than your financial records. After all, knowing when to get rid of clothes is a lot easier than knowing the rules for how long to keep tax returns or, better yet, whether or not you should be keeping receipts and credit-card statements.
Unfortunately, as identity-theft crimes continue to grow, we're living in a time where one person's trash is another person's treasure. It's just as important to protect personal information from would-be identity thieves after tax season as it is to understand IRS rules while filing taxes. Last year, consumers lost nearly $57 billion to criminals who stole their identities.
Although it may seem easiest to keep financial records indefinitely, an overflowing desk drawer or filing cabinet makes it nearly impossible to access documents when they're needed. It also increases the likelihood of accidentally misplacing sensitive documents that can lead to identity theft.
"It's important to understand which documents need to be kept and which need to be shred to avoid having personal information fall into the hands of an identity thief," says Kristen Gehrig, senior marketing manager for Fellowes, Inc., the leading shredder manufacturer. "Shredding sensitive documents has become a home necessity these days."
To conquer the stacks of paper that inevitably accumulate in every household, it's important to understand what you need to keep and what you can safely shred:
• Tax returns: The IRS has three years to challenge information in your return and six years to conduct an audit based on unreported income. Keep tax returns and supporting records, like W-2s and 1099s, for at least seven years.
• Investment statements for taxable accounts: Most brokerage firms and mutual-fund companies send annual statements summarizing the year's transactions. Once you have these, you should shred your monthly and/or quarterly statements.
• Bank statements: Keep statements that back up information on your tax returns for up to seven years. Other bank statements can be shredded after reviewing for errors.
• Credit-card statements: Keep statements for big purchases, like jewelry or large appliances. You might need them for warranties. If you put charitable contributions on your credit card, keep the statement for your tax records. Other monthly statements can be shredded once you've reviewed them for errors or unauthorized purchases.
• Pay stubs: While many people say to save these, it's a huge mistake. They contain everything an identity thief needs to open an account. Keep three months of history only if you are applying for a mortgage.
This column was prepared in cooperation with ARA Content.