Holding on to records

The IRS recommends that you keep copies of your tax returns and back-up documentation (W-2s, 1099s) for as long as three years after filing. That’s how long they have to audit, or examine, your return and question what you have reported. For details on how long to keep specific filings, check the IRS website at www.irs.gov. Also check your state’s recommendation for keeping records, as some states have different audit rules.

If you invest in a tax-deferred or tax-free account, you should keep all those records until the account is empty. Similarly, you should keep all records of taxable investment purchases at least until you sell — and then both the buy and sell confirmations for three more years.

Finally, if you buy a home, you need to keep all the records of what you paid to buy and improve the property because you can deduct those costs from the sale price when you sell. That can reduce or even eliminate any tax you might owe on your profit from the sale.