Are you ready for more questions seniors ask about organizing paperwork? These are actual questions that people asked professional organizers on a national webinar. They are also the questions I get asked every. Single. Week. You are not alone with these questions! But you don’t have to feel unprepared any longer.
Ready for part 2? (If you missed part 1 dealing with insurance and medical paperwork, click to read it here.)
Questions Seniors Ask About Organizing Paperwork, part 2
What financial papers should I keep, and for how long?
We mostly keep papers for 3 reasons.
- We’re vaguely afraid of an IRS audit.
- We want to prove we own something.
- We want to keep the memories.
That first one is the biggest reason we keep most paperwork, but when you learn that the IRS can’t just audit you willy nilly, that there are rules and laws around audits, then your paperwork gets much simpler. Here are the rules.
The IRS can audit anyone for 3 years after tax filing. That’s it. So you don’t need to keep check stubs from the 1990’s. The IRS doesn’t want those! That’s waaaay past three years. Secondly, if the IRS has reason to believe that you under-reported your gross income by 25% or more, they can go back six years. Hint: if you are a W-2 employee, YOU don’t report your income; your employer does! So the IRS won’t audit you for that reason. This rule mostly applies to business owners who report their own income. Third, the IRS can audit you for any length of time if they have reason to believe you committed fraud. So… don’t commit fraud. 🙂
Less than 1% of taxpayers are audited by the IRS each year, so stop worrying. If you earn more than ten million dollars a year, your chance of getting audited goes way up. We could all be so lucky to risk getting audited because we earned millions, right?
I hope you never go through an uncomfortable IRS audit, but they are not a free-for-all. The IRS has to tell people they audit very specifically what they are looking for and why. The audit is on line items, not your entire return. They might want to audit your charitable donation deductions, for example, but they can’t just demand to see your personal checkbook register. They only look at what you’ve claimed on your tax forms, so old grocery receipts, personal bank statements, and magazines from the last decade aren’t part of the mix. More importantly, if you did have the misfortune to have to tango with the IRS, your old clutter wouldn’t protect you if you couldn’t find the relevant records. In other words, it’s only useful if you can find it.
Now that you know that fear of the IRS is what drives you to keep most papers, here are the big questions to ask:
Is this paper tax-related? If yes, put it in your tax folder for the right year. If no…
Do I want to keep it anyway? If yes, file it in your category files by year (financial statements for 2021, paid bills for 2022, etc). MAKE SURE the folder doesn’t just have a label, but it also has a date! That way, you can toss the whole file at some point in the future, without spending time sorting and reviewing.
How long to keep your tax records? Three years for everyone. If you own a business or otherwise self-report your own income, then keep records for seven years (six years plus the current year). In yesterday’s article, I mentioned why you might keep tax records for 10 years. I personally recommend that you keep the actual 1040 tax forms forever. They don’t take up much space on their own, maybe one full banker’s box for a lifetime of filings. You can toss the supporting documentation after the retention period that makes sense for you (3, 7, or 10 years).
Most of the non-tax papers you should keep are vital records. Print a free list of vital records here.
Still not sure what you should keep? You might need a pro organizer to help. As much as you hate organizing papers, we love, love, love it. Hey, we all have our superpowers. We love using ours for the power of good.
Where should wills be kept?
You should keep your original will that carries your original notarized signature along with your important papers, which we call vital records. You can keep it in a file cabinet in a folder marked “Last Will and Testament” or simply “Wills,” in a fireproof home safe, or in a safety deposit box. Wherever you keep the original, make sure that you have entrusted someone to know where your important documents are in case you are incapacitated or die. That person should have access to your records, or know how to access them when the time comes. You can also make a copy of your will, along with directions to where the original is stored, if you prefer.
Your attorney may also keep a copy of your will, but it’s best to let your trusted person know how to reach your attorney, and whether the attorney has another copy or original version of your will.
How long should I keep old wills? What if I update a will?
When you write and execute a new will, it replaces your previous will. If that is the case and your updates constitute an entirely new document, then you can shred your previous wills. If your updates are in the form of a codicil (that’s what an addendum to wills are called, because legal stuff all has different names), they should be kept with your original will, as mentioned above, since a codicil is an addendum to the original document.
What wills, property document should I keep from a parent’s estate after it is settled?
If you are keeping wills for parents and other relatives who have passed on, once all property has been distributed, debts are paid, the estate has been settled, you may keep the will document for historical and genealogical reasons, along with other vital records like birth certificates, death certificates, immigration and military records. You should contact an attorney to help you settle the estate properly and quickly. The timeframe to settle an estate will depend on the complexity of their estate and the state they lived and died in. Once settled, you can shred and dispose of their household paperwork such as tax records and paid bills.
What documents do I need to keep from properties that I no longer own?
We keep papers that we might need again, but the question is always, under what conditions would I need old documents for properties I no longer own? Once you sell a property, have filed all relevant taxes, and no longer have any legal interest in it, you can safely dispose of paperwork about the house, maintenance you performed, upgrades you made over the years. When you sold houses, you probably passed on some paperwork related to major systems (heating, roof, additions, etc.) to the new owners. There is no reason to keep those once you move. Just to be safe, you should still keep the following three documents in your files forever:
- Title insurance
- Mortgage payoff letters for the original, refinanced, and final loan (Not the entire mortgage packet; keep just the payoff letter.)
Having these documents will protect you in the highly unlikely chance that a future claim is made against that property or a mortgage is not cleared off of your credit report.
How long should I keep business records for a business I no longer own? Is 10 years long enough?
You’ll want to talk with your tax advisor and your business attorney for specific advice. There are different types of records, different reasons to keep them, and differing retention requirements based on your state.
For instance, you may be required to keep HR records for a longer period than your tax filings, depending on your state.
Are there scanning services that can help convert documents into virtual copies that can be organized ?
Yes, you can contact a Certified Professional Organizer; some but not all offer this service. Or search online for “document scanning services.”We at HeartWork Organizing do offer these services:
- paper sorting
- paper scanning
Let’s bust a big myth: scanning does not organize your documents. Scanning a pile of disorganized documents just leaves you with a digital mess.
Here’s another downer: digital documents need care and maintenance. Unlike paper documents, you’ll need to backup your scanned documents to at least two other drives, and you’ll need to maintain those digital files into the future to avoid losing them to crashes and accidental deletion. This makes sense for some households, but it doesn’t make sense for the vast majority of households. You are better off going “paper-less” to reduce paper in the first place.
The rest of the papers in your pile? I promise you, they probably are to-do’s. Many of them are way past needing to be done! They are just delayed decisions, but not nearly as scary in reality as they look when they are all lumped into — badum bum! — one big pile.
If you are overcome, overwhelmed, and exhausted by your papers, I promise that you don’t have to live like that one more day. Click for a free chat with one of our pro organizers, and we’ll get you started on the road to recovery.