The question of how long to retain important paperwork often depends on
the length of any applicable statute of limitation. A "statute of
limitation" is a legally imposed time limit or deadline upon which
a person or the government must bring an action against you to enforce
a law or claim.
Tax Returns and Supporting Documents. The IRS has a "three-year"
or "six-year" statute of limitation on tax audits. The "six-year"
statute applies where the taxpayer omits additional gross income in excess
of 25% of the amount stated on the return, and the "three-year"
statute applies to all others. The returns themselves should be retained
indefinitely, while any and all documents that support a return (i.e.,
receipts, statements, W-2s, 1099s, etc.), should be retained for seven
years. Note: There is also an "indefinite" statute of limitation,
but that applies only to fraudulent or non-filed returns.
Household Paperwork. Purchase receipts, utility bills, credit card and
bank statements should be retained as long as they are relevant or supportive
of your tax return (see above). However, it is not necessary that you
retain duplicate items (i.e., once your bank or credit card statement
is reconciled, you can throw away the actual purchase receipt, unless
required for a warranty or rebate).
Family Documents. The following documents should be retained indefinitely:
Birth, marriage and death certificates, divorce, separation, adoption
& custody papers, and citizenship & naturalization documents.
Passports, driver's licenses, professional licenses, etc. can, and
should, be discarded upon being replaced by updated documents.
Estate Planning Documents. Wills, trusts, advance health care directives,
and powers of attorney should be retained indefinitely, even if amended,
revoked or replaced. In fact, you should indicate directly on the revoked
or replaced documents that they are no longer effective but keep the document.
This will avoid any confusion as to which documents are applicable if
more than one copy exists.
Legal Documents. The statute of limitations on enforcing written contracts
is four (4) years. Therefore, you should retain any contract for at least
4 years after it's completion. Insurance policies should be retained
at least as long as the asset insured exists, or as long as it is relevant
for tax purposes.
Real Property Documents. All documents related to real property ( such
as all deeds, receipts for improvements, and tax information) should be
kept for as long as you own the property. In addition, these documents
should be retained as long as the proceeds from the sale of any real property
are rolled over into another property, as the tax basis may be transferrable.