Tax Prep & Planning

Shred, Discard, or Keep Tax Documents?

With 3 million Americans annually reporting tax identity theft and an estimated $5 billion paid out in fraudulent returns, security is a hot issue. While cyber attacks pose a major threat, not all attackers are found online… They sift through trash and recycling bins to hunt for personal information like your name, address, Social Security Number, or documents that compromise your identity and use what they’ve found to file fraudulent tax returns.

In all reality, dumpster divers are not just looking for second-hand household items, they seek your personal information that could affect your financial credibility down the line.

How Long Do You Need to Keep Tax Records?

During tax season, you probably have questioned what tax and financial documents you should shred, discard, or keep. Here are some common records kept and the how long to keep tax documents:

Indefinitely:

  • Records of business expenses and property sales that resulted in NOLs or capital losses
  • Records of home improvements or other expenditures that establish basis

3 Years:

  • Previous tax returns
  • Proof of charitable contributions and receipts related to business expenses.
  • Bank statements
  • Printed paystubs
  • Utility bills
  • Brokerage statements
  • Medical and dental expense receipts
  • Supporting documents for tax:
    •  W2s
    • 1099s
    • Tax-reporting statements
    • HUD and Closing Disclosure forms
    • Mortgage statements
    • 1095s and certificates of exemptions
    • W4s
    • Retirement savings annual reports
    • Annual brokerage statements

* View IRS Topic 305 for more information.

How to Protect Yourself

Tax records and supporting financial documents should be kept in secure storage – in a password protected electronic file and a safe. Here are a few best practices for protecting your personal information:

  • When you do decide to discard of financial documents, always use a paper shredder.
  • Play it safe. Keep tax documents locked in a safe so that they’re not easily available if your home is ever broken into.
  • Identity shield products guarantee to protect your identity, so in the instance of fraudulent tax activity, you are protected. Consider using one of these products.
  • Never leave your receipts in a public place. Even if they only display the last few digits of a credit card, hackers still attempt to use this information.
  • Duplicate important documents. Store a hard and online copy of important documents in a safe area. And, make sure the copies are securely stored on your home computer. Update your security software frequently.

Use the same IRS-issued guidelines for hard-copy document storage of tax records as electronic. It should be:

  • Secure
  • Legible and readable
  • Organized or indexed so the material can be easily located

Thankfully there are a few safeguards to learn how to discard or keep tax documents. But, here is the best option…  Connect with a Tax Advisor from Block Advisors to find a year-round partner to answer every question you may have on this issue and more.

Find a Tax Advisor now.

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