5 Tips for Keeping Tax and Other Financial Records

Knowing how long you should keep tax records and other financial documents can be confusing. Many people are so afraid to throw away papers that they store boxes of documents for decades. I have to admit that I used to be one of them!

This post will review five tips for keeping the right documents. You'll learn which financial records you can toss, what to save, and for how long.

Here's what you should know about tossing records and staying compliant with IRS regulations.

1. Keep digital copies of your filed tax returns

The IRS allows you to keep digital copies of your tax returns and the supporting documents for your income, deductions, and tax credits you claim each year. In general, individuals must keep tax returns and backup for a minimum of three years. That's because you have up to three years to file an amended tax return or be chosen for a tax audit.

However, you can claim a loss on 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.

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.

You might use a free scanning app, such as Genius Scan, on your mobile device. It's loaded with image enhancement features and allows you to export documents as JPEG or multi-page PDF files to email, text, or cloud services such as Google Drive, Dropbox, and Evernote. If you have stacks of paper to scan, a traditional flatbed scanner with a document feeder can be a time-saver. Many inexpensive printers have built-in scanners that send files to your email.

2. Manage your digital files wisely

As you transition from paper to digital tax and financial records, you'll probably find that you only need a small drawer for your essential files, which we'll cover in a moment. And if you're like me, you'll feel great about decluttering and saving space in your home.

When you begin storing digital files, it's essential to keep them organized...

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