Many people think there's no substitute for keeping tax returns and supporting records forever. True, if you've been filing grossly fraudulent tax returns (or not filing at all), the IRS can go back to the time you were in diapers in search of income to tax. But if you are fundamentally an honest taxpayer, you don't need to keep decades of past tax returns.
- Records supporting cost basis for investments such as stocks, mutual funds, and collectibles. You'll need to hold onto these until you sell the investments in order to prove how much you paid for them. Incidentally, you generally don't need to maintain such records for investments you hold in retirement accounts since capital gains and losses in these accounts are not subject to income taxes. The only taxes you pay on retirement accounts are generally assessed when you make withdrawals and are not based on an investment's cost.
- Records supporting your home purchase and home improvements. Finally, hold on to all records pertaining to the original purchase of your home, including the closing statement, as well as any improvement you have made to your manse. These may come in very handy when you eventually sell your home.
The IRS has a fine publication on why you should keep records, what kinds of records you should keep, and how long you should keep them.