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Getting Personal: Trashing your old tax documents

How many years of tax records are you keeping in the garage? In most cases, 7 is enough.

Is your basement full of decades worth of old tax returns? Are you struggling with a loan that has terms you weren't aware of when you signed on the dotted line? Have you become the executor of a loved one's estate and aren't sure what's expected of you? This week, Marketplace Money guest host Sarah Gardner teams up with Liz Weston, MSN’s personal finance columnist and the author of a couple influential books on the subject, to answer some questions from listeners.

How many years of tax documents are you required by law to keep? Many people have been accumulating boxes of old receipts and tax info for decades, but it may be time to finally get that shredder out and start lightening the burden they're carrying. Liz tells us that we're only required to keep seven years worth of tax records, with just a few exceptions, including receipts and invoices related to home improvements, as they could save you some money in the future if or when you decide to sell your house. Don't feel comfortable throwing all those documents away for good? No problem, says Liz, "Scan it then shred it."

Christina from Rochester, New York called in to discuss a $3,000 student loan she cosigned on to help a friend but neglected to read the entire document before signing it. She later learned the cosignee had continued to access the loan over and over and had amassed more than $50,000 in debt. Liz says this is what the Truth In Lending Act was created for and that it may be a good idea to contact the National Association of Consumer Advocates to find out what your options are. She also warns against cosigning loans. If the person skips just one payment, she says, "it could knock 110 points off your credit score." Christina says she will continue to be generous and help whenever she can, but that she will always read the entire loan document first.

Finally, Suzanne from Billings, Mont., called to talk about her aunt, who had recently made her the executor of her estate. While her aunt has little in the way of wealth, Suzanne wants to make the right decisions to keep her aunt's quality of life high as she ages. Liz warns that transferring assets before she understands their ramifications on her aunt's access to Medicaid could prove a costly mistake. She recommends consulting an elder law attorney before committing to any big decisions.


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About the author

Sarah Gardner is a reporter on the Marketplace sustainability desk covering sustainability news spots and features.
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I always cringe when I hear professionals advise that tax documents should be destroyed after seven years. Last year (at age 59) I had the opportunity to take advantage of a special catch-up provision in my 457 plan. It allowed me to defer now what I could have deferred early in my career but didn't. However, in order to do this I had to produce copies of my W-2 forms going way back to 1976. Lucky for me, I did not heed the conventional advice - and have copies of my tax returns going back that far. That allowed me to increase my pre-tax deferrals several thousand dollars. Of course, I now scan documents like this - but that would not have been possible back then. Also - the IRS only keeps copies for seven years so there is no back-up after that.

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