- Your home and possessions. Never get rid of key real estate documents such as your home's title, deed of purchase, mortgage contract, sales contract, or receipts for capital improvements and repairs you made. These records will help when you try to minimize the capital-gains taxes you may owe after selling your home for a profit. Also, keep receipts for big-ticket purchases such as jewelry and furniture; unfortunately, you may need them to file insurance claims someday.
- Your taxes and tax returns. You'll need your supporting tax documents in case the IRS asks you to prove your deductible expenses or to establish your cost basis for a gain or loss. But feel free to toss these backups and your annual pay stubs after three years beyond the date you file your tax return. Past that point, the IRS can't audit your return unless it suspects fraud. Don't ever throw away your tax returns, though: They can be invaluable reminders of previous financial moves you made. For more details, get IRS Publication No. 552, Recordkeeping for Individuals (800-829-3676).
- Your bank and credit card records. Canceled checks and bank and credit card statements with no potential tax implications can generally be dumped after three years.
- Your investments. There's usually no reason to keep monthly mutual fund or brokerage statements unless your annual statement fails to show all your transactions for the past 12 months. The exceptions: Save all trade confirmations and dividend-reinvestment statements for three years after you file a return declaring a gain or loss from selling securities. This way, you'll be able to show how much you paid for your investments, says Richard Philipson, a C.P.A. with Robert Philipson & Co. in Silver Spring, Md. Save your annual statements indefinitely.
- Your IRA. As with annual brokerage statements, it's a good idea to hold on to all your annual IRA statements. We think a nondeductible IRA is generally not worth the required bookkeeping. But if you have one, be sure to keep all your records. That way, you can show Uncle Sam which part of your withdrawal was funded with after-tax money. Otherwise, you'll pay tax twice on the same money! “
“Recordkeeping.” Money by Ken and Daria Dolan. April 1994, Page 33.
Internal Revenue Service Recordkeeping for Individuals http://www.irs.gov/pub/irs-pdf/p552.pdf.