The first step in efficient documentation management is figuring out which documents to keep and how long to keep them. Some, such as the monthly statements for bank, credit card, investment and retirement accounts, are obvious. Others might not be so obvious. You may need a pharmacy receipt as proof of a medical expense or the receipt for a summer camp for a possible child-care credit.
When it comes to receipts, there are two questions: Which ones do you keep and for how long? The answers vary by taxpayer.
The rule of thumb among experts is seven years, although Internal Revenue Service resources offer some scenarios in which shorter retention periods are acceptable. Carol W. Thompson, an enrolled agent and tax expert in Springvale, Maine, suggests some documents be kept even longer than seven years. Among the documents in that category are any related to physical assets, such as a home, automobile or office equipment.
Some purchases — especially if they are related to a business expense — depreciate over time. Related documents must be kept for as long as you own the property or item. The IRS warns that documents related to real estate transactions should be kept until all tax obligations for the property have been settled — in some cases a year or longer after the sale.
Just as important is recognizing it’s OK to toss out some receipts.
“You don’t need to keep everything,” said organizational expert Jodie Watson, owner of Los Angeles, California-based Supreme Organization. “In most cases you don’t (need) grocery store receipts — unless you want them for your own records, to know what you spent on groceries.”