PURGE YOUR FILING CABINET! HERE’S WHAT TAX PAPERWORK TO KEEP OR TRASH

The overwhelming fear of an audit leads many Americans to take on the role of paperwork pack rats, saving hundreds and hundreds of files under the thinking that “someday” they’ll need them. Paperwork sticks out and piles up everywhere from the kitchen table and counter to the office shelves and drawers—and of course, there’s the pregnant-looking file cabinets. While we still may not be a totally paperless society, much more can be trashed that you’ve ever thought possible. Here is what you can and can’t shred:

Shred any paperwork if you already own an electronic copy.

There’s no reason to save paper documents like bank or stock statements. The IRS accepts electronic copies of everything, including the scans of the originals. By the way, if you haven’t gone paperless with your bank and other financial institutions, you should do so now and skip the paper and scanning altogether! Also, make sure to securely back up your data either through an external hard drive, CD or USB, or in the cloud.

Save the summaries. Shred the rest.

Toss monthly brokerage statements and trade confirmations, pay stubs, ATM receipts and deposit slips, and credit and debit card receipts—after you’ve verified they’re correct on the summaries and statements. Once you’ve compared your monthly statements to year-end brokerage statements, your pay stubs to your W-2 and your ATM receipts and deposits to your statements, you don’t need to hold on to them any longer. For credit and debit receipts, keep only the ones you know you’ll need for tax purposes, such as for major purchases. If you’re worried you’ll need receipts for smaller purchases, set up a file for them and then discard after six months.

Shred your retirement accounts files.

Since your IRA, 401(k) and other retirement accounts don’t qualify for capital gains tax, you don’t need to keep track of those investments for tax purposes. However, there are some exceptions. You’ll need to keep documentation indefinitely of any nondeductible contributions (which you should report on your annual tax return using Form 8606), account transfers (when you roll your 401(k) into another employer’s plan or change IRA custodians, for instance), Form 5498s that summarizes your annual account activity and, if you qualify, statements verifying you contributed to a 403(b) account before 1987.

Shred tax paperwork after the six-year mark.

Your biggest risk for an audit is within the first three years after you file your tax return, although the time frame extends to six years if you underreport your income by 25 percent or more. So to be on the safe side, if you filed your 2014 return on April 15, 2015, you’ll want to keep your records until April 15, 2021, which is seven years from 2014. Then, you’re welcome to shred any of your supporting tax documentation after your audit risk has lapsed. (Many tax pros recommend you keep copies of the actual returns indefinitely.)

Save paperwork on your taxable assets.

Documentation on things like your real estate or stock portfolio should be kept for as long as you own those investments, plus six years after you file the relevant tax return. Of course, you don’t need to hang on to actual paper if you’ve scanned the originals. As you start your paper cleanse, remember that if your biggest worry is that you’ll shred a document you’ll need later, most of them can be pretty easily recreated even if you haven’t scanned the originals or saved an electronic version. For example, banks and brokerages keep statement copies for at least six years, and many do so for longer. So go ahead, and let yourself shred, shred, shred! The foregoing information is provided as a courtesy of City National Bank (CNB). Unless otherwise stated, opinions expressed are those of the respective authors and not necessarily those of CNB. The information is provided without warranty and no recommendation or endorsement by CNB is intended or should be inferred unless specifically stated.