Tax Tips: How long should I keep my tax records?
Once you receive your W-2, you can throw out the pay stubs. Once you receive your 1098 for mortgage interest paid, you can discard your monthly mortgage statements. Most of the other documents mentioned above should be kept with your tax return for the three year period. Items related to your home purchase, rental property purchase, or major renovation should be kept until you sell the property.
Anything that has been deducted on the tax return should have documentation in your files, in case the IRS ever questions it. You may have heard that you should keep your records for seven years, rather than the three years I've mentioned above. Three years is the time frame during which the IRS can audit your tax return, while seven years is generally the time period during which the IRS can bring a criminal tax fraud case against you. Since most of us aren't engaged in serious tax fraud, we probably don't need to maintain our records for seven years. Some people still like to be cautious though, and keep the records for the longer period.
You can find more information about good recordkeeping practices at the IRS website.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.