Organizing your paperwork can help you get a better grasp of your expenses and financial health. However, that doesn't mean you need to keep every last receipt and statement. In fact, you can discard many of them quicker than you think. The key is knowing what you need to keep and for how long.
Credit Card Receipts
If you use your credit cards for personal expenses, keep all of your receipts until you reconcile them with your monthly statement. When your statement arrives, verify each charge. Internet hackers and identity thieves often charge negligible amounts to verify the accuracy of an account number. Contact your credit card company if you spot charges that you did not incur. Keeping receipts organized and in one place until your statement arrives speeds the investigative process.
Monthly Statements
Retain your monthly statement until the next one arrives to verify that the credit card company received your payment and posted it accurately. Once you've verified that, you can discard your previous statement. However, if you have charged a major purchase, such as an appliance, keep the statement and receipt for the duration of the warranty on the purchase. Also, keep statements that reflect charges for home improvements to reduce your capital gain when it's time to sell your home. Many credit card companies maintain statements online for you. Check with your bank or credit card company regarding its retention policy and fees.
Business Use and Tax Documentation
Paperwork rules differ if you use your credit card for business expenses. Keep your credit cards bills for three to seven years if you charge tax-deductible expenses related to your business. Using a separate credit card for business purchases is an easy way to stay organized. If you use your credit card to make tax payments, charitable contributions or other expenses that you itemize when filing, keep your statements for as long as the IRS can audit your return.
IRS Auditing
If the IRS suspects you made a "good-faith" error, it can audit your return for up to three years from the filing date. You also can be selected for a random audit during that time. The audit window extends to six years if the IRS believes you under-reported your income by 25 percent or more. The IRS sets no time limit for an audit if you file a fraudulent return or fail to file one.
Getting Organized
File the credit card statements you need to keep as soon as you've verified the charges. Highlight the appropriate charges, and keep the statement with your warranty information in your home improvement or tax document file. Shred receipts and statements that you don't need before discarding them. Remember, your statement contains your account number and other sensitive financial data.
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