It’s time for the annual paper archiving party! Many years ago I began this yearly purge of my files as a way to keep enough space in my active files drawers and keep them from getting gummed up with really old stuff. After all, the only reason I’m going to need that statement from 3 years ago is if the tax man comes looking to audit me. (*Knock on wood*)
Over the years, I’ve worked with many clients who felt completely confused about what paperwork they needed to keep and what could go. I would always start by saying, “I am not a lawyer or accountant, and you should confirm everything we discuss or decide with the appropriate professionals.” However, there are some guidelines that are generally accepted standards, which I can help you implement.
So, get ready to clear some space in your file drawers as I walk you through my annual paperwork purge process…
How much should I keep?
Provided you’ve always filed your taxes on time each year, the most conservative recommendation is to keep the related paperwork for 7 years. Personally, I prefer to never make the tax man unhappy with me. So, I keep all my financial papers and statements for 7 years. That means that I have seven labeled archive boxes that live in my basement. One of my favorite former clients called them “Financial Coffins” because they were where paperwork went to die, which always amused me.
Obviously, you have to decide how many years of information you want to keep based on what you’re comfortable with. You will find sources that recommend 6 years or even just 3 years. In this way, I’m fairly conservative, and I have the basement space to make it a non-issue.
There are some docs that you will want to keep longer or permanently. Specifically, things like receipts and records for capital improvements on your home, birth certificates, death certificates, divorce or adoption paperwork, wills, trusts, etc. Take a look at the link above for a list generated by a group of CPAs for specific guidance if you’re unsure about a document. And, if you’re still unclear, then a quick call to your lawyer or accountant is always a good idea.
Step 1: Purge The Oldest Year’s Records
Each year I start by grabbing the oldest box from my basement archive (7 years ago), and I pull out the shredder. Everything except my tax return and the key supporting docs (W-2, 1099s, Schedule C reports, etc) gets destroyed. Then, provided it’s still in good condition, the box gets repurposed for this year. The old tax return and supporting docs get scanned (if they haven’t been already), then they go into the shredder too.
Key here: I have many redundancies on my digital document storage via both Dropbox and Carbonite. The only way you can rely on digital copies of documents is if you know that a failed hard drive will not wipe you out.
If you’re not comfortable with cloud storage of such sensitive information, then setup appropriate on-site hard drive redundancies (Take a look at Drobo as a good option for this) as well as ensuring there’s a non-local copy stored somewhere (bank deposit box, family member’s home, etc.) Similarly, you don’t want a house fire to destroy even your backups.
If you still feel strongly about keeping the paper copies, then I would put them in a fire proof safe, preferably one that protects from fire and water (since they tend to use water to put out fires), and which is rated for at least an hour which is how long a normal house fire tends to burn. If you’re putting digital data in the safe as well, then make sure it’s rated for that since if it gets too hot inside CDs and USB keys will just melt.
Step 2: Pull Last Year’s Files to Archive
Once you’ve got your archive box cleared (cleaned?) and relabeled for the appropriate year, you’re ready to start filling it up. Personally, I don’t get hard-core about recreating files in this box and using up a bunch of folders. In reality, most of these documents will never be touched again.
So, I grab a variety of sizes of binder clips and simply clip together the items that I pull from each of my files. I prefer binder clips rather than paper clips or rubber bands because they only grab what you intend them to and don’t break down as quickly as rubber.
What ends up in the box then are a stack of clipped sets of docs from various bank accounts, credit cards, utility bills, etc. For receipts, I shove them into manilla envelopes and label them according to whatever logic I already have (i.e. Erin’s Business, Brian’s Business, Personal Receipts.)
My experience says that it’s a waste of time to put too much energy into over-organizing these archive items. In most cases they’re just going to hang around in your basement or storage area for a while before getting shredded.
However, in the interest of not pissing off the tax man at some future date I keep everything financial in the appropriate box. Then, if an audit should ever come, I can just hand the whole box to my accountant and let them “go to it.”
Step 3: Set & Refresh Your Files for the New Year
Since we’re not actually removing the folders from your drawers to archive, just the paperwork, you should be able to keep reusing your filing system from year-to-year. However, sometimes this is a great opportunity to do a little repair work. Got a file that’s really getting ratty, then replace it. Opened a new account that hasn’t been given a proper home? Now’s your chance.
The one file that I do pull and place into the archive box is my “20XX Tax File”. That gets placed directly into the archive box and becomes where the final return and supporting paperwork resides (thus making it easy to pull for reference when doing the taxes or reviewing if necessary.) So, I create a new one of these files to live in my active filing system each year.
That’s it!
Next Steps
Since you may not have such a system setup yet, make this year your starting point. Pick up a plastic file box at your local office supply store, and start with step 2 above.
It rarely takes me more than an hour to get this done, and it makes using my filing system in the new year so much nicer. Share this process with your friends on social media, and let’s help everyone “get more organized” for the new year!
