Should I Shred Receipts? What to Keep and Why

Managing physical receipts presents a challenge: deciding which to keep and which to discard. Balancing convenience, financial security, and proper record-keeping is important. Understanding the value and risks associated with receipts helps in making informed decisions about their handling.

Identifying Sensitive Information on Receipts

Receipts contain sensitive personal and financial details that could lead to privacy or security risks if exposed. These include the last few digits of a credit or debit card number, bank account information, full names, addresses, and signatures. Federal laws like the Fair and Accurate Credit Transaction Act (FACTA) require truncation of card numbers, but even partial information can be exploited. Detailed purchase information, revealing spending habits or financial status, is also sensitive. Such data could be used for identity theft or other fraudulent activities.

Receipts to Retain and Why

Receipts should be kept for practical and financial reasons. Receipts for tax-deductible expenses are necessary for accurate tax filing and can be crucial evidence in case of an audit. These include business expenses, medical costs, and charitable contributions. Keeping receipts for large purchases, such as home improvements or significant assets like vehicles or jewelry, is advisable. These records can support insurance claims, track depreciation, or verify cost basis for capital gains purposes upon resale.

Receipts for items under warranty, like electronics or appliances, are important for returns, exchanges, or repairs. Manufacturers often require proof of purchase to honor warranty claims. Receipts also serve as proof of payment for bills, medical co-pays, or expenses awaiting reimbursement. Retaining certain receipts can aid in personal budgeting and financial tracking, providing a clear overview of spending patterns.

How Long to Keep Receipts

The retention period for receipts varies based on their purpose. For tax-related documents, the Internal Revenue Service (IRS) recommends keeping records for at least three years from the date you filed your return. It is often prudent to keep these for six or even seven years, especially if there’s a possibility of underreported income.

Receipts for items covered by a warranty should be kept for the duration of the warranty period. For major purchases or assets, it is advisable to retain receipts for the entire life of the asset. Proof of payment for routine bills can be discarded once the payment is verified on the next statement, or after about one year.

Secure Disposal and Digital Alternatives

When discarding physical receipts containing sensitive information, secure disposal is important to prevent identity theft. Using a cross-cut shredder is recommended over a strip-cut shredder, as it renders the information unreadable by cutting documents into small, confetti-like pieces. Other secure methods include burning or utilizing professional shredding services for larger volumes of sensitive documents.

Adopting digital alternatives can significantly reduce the need for physical receipt management. Many mobile applications allow users to scan or photograph receipts, automatically extracting key information and storing it securely in the cloud. Digital receipts offer benefits such as easier organization, enhanced searchability, and reduced physical clutter. When opting for digital storage, it is important to ensure regular backups and to use reputable platforms with strong security measures to protect your financial data.