If you're like most people, you spend more time organizing the closet than your financial records. After all, knowing when to get rid of clothes is a lot easier than knowing the rules for how long to keep tax returns, or better yet, whether or not you should be keeping receipts and credit card statements.
Unfortunately, as identity theft crimes continue to grow, we're living in a time where one person's trash is another person's treasure. As Americans sort through mountains of paperwork this tax season, it's important to not only understand IRS rules, but also protect personal information from would-be identity thieves. Last year, consumers lost nearly $57 billion to criminals who stole their identities - a scary thought as we discard old documents and fill up our garbage cans prior to April 15th.
Although it may seem easiest to keep financial records indefinitely, an overflowing desk drawer or filing cabinet makes it nearly impossible to access documents when they're needed. It also increases the likelihood of accidentally misplacing sensitive documents that can lead to identity theft.
"It's important to understand which documents need to be kept and which need to be shred to avoid having personal information fall into the hands of an identity thief," says Kristen Gehrig, senior marketing manager for Fellowes, Inc., a leading shredder manufacturer. "Shredding sensitive documents has become a home necessity these days."
To conquer the stacks of paper that inevitably accumulate in every household, it's important to understand what you need to keep and what you can safely shred.
Below is a list of specific items to consider shredding for your safety and privacy:
- Tax returns: The IRS has three years to challenge information in your return and six years to conduct an audit based on unreported income. Keep tax returns and supporting records, like W-2s and 1099s for at least seven years.
- Investment statements for taxable accounts: Most brokerage firms and mutual fund companies send annual statements summarizing the year's transactions. Once you have these, you should shred your monthly and/or quarterly statements.
- Bank statements: Keep statements that back up information on your tax returns for up to seven years. Other bank statements can be shredded after reviewing for errors.
- Credit card statements: Keep statements for big purchases, like jewelry or large appliances. You might need them for warranties. If you put charitable contributions on your credit card, keep the statement for your tax records. Other monthly statements can be shredded once you've reviewed them for errors or unauthorized purchases.
- Pay stubs: While many people say to save these, it's a huge mistake. They contain everything an identity thief needs to open an account. Keep three months of history only if you are applying for a mortgage.
- ATM receipts: Shred all receipts after you balance your bank statement.
- Canceled checks: With no significance for tax or other purposes, these should be destroyed after one year.
- Retirement plan contributions: Keep records of contributions to non-deductible individual retirement accounts, such as a Roth IRA, indefinitely. Without them, you may find yourself paying taxes again when the money is withdrawn. Some financial institutions keep records of IRA contributions, but it's best not to count on it.
- Insurance policies, wills and other legal documents: These documents should be kept indefinitely.
For documents you need to keep, consider storing them in a safe and accessible place, such as a fireproof box in your home. When destroying records, it's best to use a shredder that can slice credit cards and has cross-cut (also known as confetti cut) capabilities, such as the Fellowes Powershred DS-3.
Identity thieves can't steal what they can't read, and cross-cut shredders ensure that private information is destroyed into small, unidentifiable pieces.
The Fellowes DS-3 is recommended by groups such as the Good Housekeeping Institute because of its Safe Sense Technology, which shuts down the shredder when it senses that hands are too close to the paper opening, thus alleviating child safety concerns with a shredder in the home.
Additionally, a few more protective measures against identity theft should be taken during tax season. Take tax forms directly to the post office; do not leave them in a private mailbox where they're accessible to a potential neighborhood thief. Also, be sure to shred any paperwork needed to calculate taxes such as receipts, bank records and various forms. If you choose not to do your own taxes, be very selective of whom you hire. Conduct research on tax companies and ask questions, including how information will be stored, shared and disposed or destroyed.
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