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When it comes to tax-related documents, good recordkeeping means knowing what to toss, and what to keep and for how long. The IRS (Internal Revenue Service) doesn't require you to keep records in any particular way. Develop a system that helps you and the IRS figure your correct tax. Keep track of expenses Throughout the year, collect receipts that document tax deductions. Consider designating a file for each tax credit, such as child care; and for each deduction, such as medical expenses, charitable contributions, mortgage interest, real estate taxes, alimony, and casualty losses. Cash payments require a dated and signed receipt showing amount and description. If you use a software package for recordkeeping, you'll need to produce proof of payment, receipts, and other documents to prove amounts on your return.
Organize home records Keep closing statements, purchase and sales invoices, and proof-of-payment and insurance records. Keep improvement records until you sell the home.
Just hang on Keep W-2s, 1099s, and brokerage and financial statements to prove income at least three years after you file, or longer if necessary. Some experts advise keeping copies of tax returns forever, and supporting documentation for seven years. IRS guidelines state that you should keep documentation for deductions at least three years, but if you've underreported income by 25%, the IRS can audit up to six years later. If you filed a fraudulent return or didn't file one at all, all bets are off--an audit can occur at any time.
Shred or burn Get rid of receipts that don't document a tax deduction or that aren't for large purchases or warranties. Shred credit card receipts and statements that don't contain tax-related expenses, after matching them against your monthly statement. Match paycheck stubs against your annual W-2, then shred the stubs. Verify quarterly retirement and savings statements against the annual summary, then shred.	Free Money Management Planner Life Change To-Do Lists
For more information, visit the IRS Web site at www.irs.gov. Search for Publication 552, Recordkeeping for Individuals.

Financial Records: What to Keep, What to Toss