There is always a constant balance (okay, struggle) between keeping paperwork "just in case" and freeing yourself from the clutter. There are many reasons to keep records - for tax back-up, insurance purposes, marriage or divorce, or getting a loan. Good record keeping will help you identifying your sources of income, keep track of your expenses and keep track of the basis of your property and help you file tax returns.
But really, how long do we need to keep all this stuff? Whether in hard copy or digital, here is what the IRS wants you to know about record keeping.
1. In most cases, the IRS does not require you to keep records in any special manner. Generally, you should keep any and all documents that may have an impact on your federal tax return.
2. You should usually keep the following records to support your tax returns for at least three years. (And yes, I've also seen SEVEN years, which is my normal conservative approach, but the IRS website does say three years unless there is a specific circumstance.)
Bills (as long as they support your taxes)
Credit card and other receipts
Canceled, imaged or substitute checks or any other proof of payment
Any other records to support deductions or credits you claim on your return
You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:
A home purchase or improvement
Stocks and other investments
Individual Retirement Arrangement transactions
Rental property records
3. If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:
Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
I've also had great customer service support from the IRS. I you have tax-related questions, call 800-829-1040. Good luck this tax season.