Keep important papers: Hang on to final credit-card statements, along with your W-2s and 1099s for up to Seven Years.
Among the additional documents you should retain:
- canceled checks and receipts for all deductible business expenses (such as those for entertainment, home-office equipment, and professional dues) - if you do not run a business shred these documents!
- retirement-account contributions,
- charitable donations,
- child-care bills,
- out-of-pocket medical expenses,
- alimony, and
- mortgage-interest and property-tax payments.
Don't throw out the actual tax returns or the year-end summaries of your investment accounts, even after the chances of an audit have all but vanished. These documents don't take up much space and can come in very handy for future financial planning. They'll take up less space if you do take the time to shred the supporting documents. So as you go through your tax boxes from 2005 and beyond, shred or toss the receipts etc. that take up the bulk of storage space. Then you can store all of your older returns in a single box.
It is crucially important to keep the confirmation slips that show beneficiary designations and the purchase price of stocks, mutual funds, and any other investments you hold; hang onto these records indefinitely because some day, says Slott, "you or your heirs will have to know exactly how much you paid to determine the profit on your investment for tax purposes."