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When Is It Okay to Shred Tax Returns and Bank Statements?

When Is It Okay to Shred Tax Returns and Bank Statements?

As we near the finish line on the 2021 tax season, you’re probably going through your old documents and wondering if you should keep them or not. A big question for everyone this time of year is: When is the right time to shred tax returns and bank statements? In the age of digital records, do you need to have them in paper form at all? These are great questions! Plus, when it comes time to shred, do you have a home office shredder or auto feed shredder?

Why You Need to Keep Tax Documents

If you’re the kind of person who tends to “clean house” often and gets rid of papers you don’t think you’ll need, you might want to take a different view when it comes to tax documents. The main reason to hold on to these important papers is if you get audited. The IRS can audit you for a period of three years. If a serious error is found, they can go back further, but they don’t often exceed six years. And the IRS does try to complete audits even more timely: within two years, in most cases.

Because of this statute of limitations, the law requires that you keep all records used to prepare your tax return for three years at a minimum. And the IRS website continues to say that records should be kept for as long as needed to prove income and deductions on your tax returns.

Janice Openshaw, tax preparer at LGO Business, says, “I highly recommend holding onto tax returns and supporting documentation for at least seven years from the date they were filed.” However, if you’re only thinking about the three years the IRS recommends, Openshaw cautions, “The IRS has three years to complete an audit from the date you file your tax return, not when the return was due.” Keep her advice in mind when determining the right time to shred tax returns and bank statements.

How Long to Save Bank Statements

Before you get ready to shred tax returns and bank statements, you need to know how long to keep them. As mentioned, the IRS suggests keeping information for taxes a minimum of three years. But what about bank statements?

According to Investopedia, about two-thirds of Americans use digital banking and more than half of consumers continue receive bank and credit card statements in the mail. If you are among those who still receive paper statements, keep them for at least one year—unless they document any tax deductions. Those should remain in your records for the minimum three years required by the IRS (or seven years if you’re following Openshaw’s advice). If you only receive digital statements, your bank will keep records available for at least one year and often up to three years.

Saving Paper Documents vs. Digital Documents

Today, many of our personal documents are saved on the cloud. That can make quick retrieval easy, but they are more susceptible to be compromised or hacked. Therefore, many people prefer to save important documents, including tax returns and bank statements, in paper format as well as digitally. In addition to a fear of being hacked, paper documents make a paper trail much easier, especially for those who aren’t as savvy about digital documentation.

When you have the option to save documents digitally, John Koloch, chief accounting guide at General Cents Accounting, says, “For most people, it is best to save documents digitally, in a secure, online service. This way, you can access them from anywhere, and you do not have to worry about losing them if your computer crashes or the server wasn't backed up. For some people, it may be best to keep physical copies of important documents. For example, if you have extensive medical records or a large number of investments, it may be easier to keep physical copies. Additionally, documents related to major purchases of assets—home purchase, vehicles, and anything greater than $2,500—should be kept in a physical form. You can store these documents in a fire-proof and water-proof safe.”

The Proper Way to Shred Tax Returns and Bank Statements

When you determine it’s safe to shred tax returns and bank statements, the next question is how to best go about doing that. Your answer should definitely consider security. For documents that contain account numbers and other personal information, a shredder that is a P-3 security or higher is your best bet. An AutoFeed+ shredder is fully automatic and hands free: you can load a large stack of documents into the bay, close the lid, and the machine will take care of the rest. The AutoFeed+ machines also allow you to shred manually.

For security reasons, Koloch suggests, “The best way to shred your documents is to use a cross-cut shredder. This type of shredder cuts the paper in multiple directions, making it much more difficult to piece the document back together.”

Openshaw concurs: “When choosing to discard information, I shred my documents. A tax return contains financial and personal data that could easily be used for identity theft or to answer questions to prove someone's identity.”

A basic P-3 home office shredder starts at around $60, with your investment increasing based on the features you desire. We suggest the P-3 or higher security level because it cross cuts documents, an essential feature for anything that has your account numbers. A basic P-2 security level is not ideal to shred tax returns and bank statements, which include sensitive information. For a full guide on different security levels of shredding, and to find out which level is best for needs, check out our article on the differences between shredder cut styles.

See the whole range of shredders available from GBC to determine which is best for your personal shredding needs. We’re sure you’ll find the perfect option to shred tax returns and bank statements.