The short answer is you need to keep documents for as long as the IRS can potentially challenge you on a position or an item that you are claiming. The statute of limitations, the time frame the IRS has to audit a tax return, for most federal returns is three years from the date the tax return was due and is extended to six years if income is understated by more than 25 percent. There is no time limit if the taxpayer doesn't file a return or files a fraudulent return to evade taxes.
With that in mind, you should keep prior year returns with all supporting documents a minimum of three years from the due date of the tax return. The conservative approach would be to keep tax returns for seven years or longer. Once the three-year period has passed, you can discard receipts/ supporting documents that will not affect future transactions.
There are many documents you should keep indefinitely. These can include wills, trusts, birth and marriage certificates. It is important to retain retirement plan (401k, IRA, etc.)and investment statements. Records of nondeductible contributions are particularly important. Retain year-end brokerage statements from the purchase of stocks, bonds and mutual funds for three years after you sell the investment. These statements show the reinvestment of dividends, the purchase of shares and the redemption of shares. These come in handy to determine basis when you have sold stock. Statements should be kept until the account is closed.
If you own a home or investment property, you should keep records of your purchases and other records related to those items. You should typically keep these records-including those related to home improvements-at least three years after you have sold or disposed of the property.
Before discarding a document, if you have a question, Click here to access the Resources page of our web site for detailed lists of record keeping requirements.