At tax time, columns commonly provide information about how long various financial records should be kept. Please identify how many months/years receipts, canceled checks and bank statements should be saved.

Tax season is the perfect time to go through your files and do a little housecleaning. It's a good idea to keep your tax returns forever -- you never know when you'll need to provide a long-term record of your earnings. But that's just a few sheets of paper each year. It's usually safe to toss your files of supporting records after three years -- the amount of time the IRS generally has to audit you. If you have any self-employed income, consider keeping your supporting records for six years.

When you sell mutual funds, you'll need to know how much you originally paid for the shares and the amount of dividends and capital gains distributions you have reinvested. Keep your first transaction report, which lists how many shares you bought and how much you paid, then keep your year-end cumulative reports. You can get rid of all of those monthly reports, however, after you've checked to make sure the year-end information is accurate.

Bank records such as ATM receipts, canceled checks and credit card receipts can usually be tossed after you've made sure the information is correct on your monthly statement. However, if your receipts will be used for tax purposes (such as for charitable contributions and business expenses), you'll want to keep them for at least three years (six if you own a business). Also consider keeping receipts for valuable items with your home inventory records, which may come in handy if you need to prove their value for insurance purposes.

Most people can also throw away utility receipts once the bills are paid. But hang onto them if you're deducting phone or electricity charges as home-office expenses, or if you want to keep a year's worth of utility expenses to show a prospective home buyer how much your utilities typically cost.

And because most homeowners don't have to worry about capital gains taxes when they sell their homes, you can probably get rid of many home-improvement records. For the few people who do end up owing taxes on their gains, however, having home-improvement records can help increase your cost basis and lower your tax bill. Consider keeping your home-improvement records if there's a chance you may have to sell your home within two years of buying it (to qualify for the home-sale exclusion, you generally have to live in the house for two of the past five years). You could also owe taxes on part of your home-sale profits if you've used part of it as a home office or if you eventually sell it for $500,000 more than what you paid for it (if married filing jointly; or more than a $250,000 profit if you're single). You'll also want to keep sales receipts of major appliances with their warranty information.

EMAIL ARTICLE | PRINT | REPRINT ARTICLE | SUBSCRIBE TO KIPLINGER MAGAZINE |

FIND THIS ARTICLE HELPFUL?

SIGN UP FOR DELIVERY OF COLUMNS AND SITE UPDATES