Tax season offers an opportunity to finally dig through that shoe box or file cabinet where you've amassed a trove of old receipts, bank statements, pay stubs and other personal financial information.
Here are some tips on how to thin out that clutter of financial records you may have accumulated over the years:
1. THE 3-YEAR RULE
A key reason to hold on to your past tax returns and supporting documentation is so you can address any issues should the Internal Revenue Service question any entries on a previous tax return. In most cases, the IRS only has three years after the return was filed to conduct an audit. That means one generally needs to keep past tax returns for at least three years, said Jackie Perlman, principle tax research analyst at The Tax Institute at H&R Block.
"That does not mean when three years are up you should take your return and throw it in the trash," she said. "If you have some concern about being vulnerable to an audit or you think the IRS might look at your return later, you might want to keep that longer."
In the event the IRS suspects you've under-reported your income by 25 percent or more, the agency can audit your returns going back six years. And if the agency believes you committed fraud, it can go audit your prior tax returns as far back as it wants.
If you've filed your tax return electronically, you can retrieve a copy on the IRS website. But it's best to only consider that a backup copy.
2. CONSIDER FUTURE TAX IMPLICATIONS
Some records, like weekly pay stubs, can be discarded after you've received your year-end pay statement. Even if you need to go back to a specific pay period, that stub can likely be recovered from your employer.
Still, you should hold on to records that may be a factor in future tax returns.
"Very often your tax return is your very best record of a lot of things you've done or haven't done," Perlman said. "You could want that information months or years later."
One example pertains to individual retirement accounts, or IRAs. If you make a non-deductible contribution to an IRA this year, for example, you might want to keep a record of that for years to come, when you begin to take distributions from the retirement account. At that point, such documentation could be necessary to establish that part of that future payout should be tax-free, notes Perlman.