When filing your tax returns, you do need to keep all of your receipts and other records to substantiate your claims for deductions. You should keep your receipts for at least three years after filing a tax return; you will need to keep them indefinitely for large items and long-term items like house repairs.
Receipts, statements and other pertinent documents help to identify income sources, track expenses, and track the cost and basis for properties. They also make it easier to prepare your tax returns, while providing supporting documentation and proof if the IRS questions certain deductions. Receipts and records provide evidence for expenses you paid or claim for deductions and credit. Receipts support the amounts shown on the tax return; however, you may need other documents to support allowable deductions, such as court papers and birth certificates. This is especially important if you make alimony payments, charity contributions, pay on mortgage and loans, and pay child care expenses.
Records to Keep
For banking and investments, keep brokerage and mutual fund statements, Forms 1099 and 2439, cancelled checks, your checkbook register, bank account deposit statements, brokerage statements, receipts, sales slips and invoices. For your home, keep closing statements, purchase and sales invoices, proof of payment, receipts for improvement costs, and insurance records. If you sold your home, you should keep a copy of Form 2119--Sale of Your Home. You should keep records of disaster losses and insurance reimbursements. You should also keep written documents from charities.
Even if you may not need them, keep copies of tax returns for future reference. These documents include Forms W-2, 1099, and K1 for income statements. Keeping previous tax returns helps you to keep track of alimony paid, business use of your home, casualty and theft losses, charitable contributions, child care credit, credit for the elderly and disabled, education, first-time homebuyer credit, gambling winnings and losses, exemptions, employee business expenses, energy credits, IRAs, retirement plans, medical and dental expenses, sales tax on vehicles, moving expenses, mortgage interest, pension, annuities, tips, and taxes paid.
Keep all of your records in an orderly, safe and accessible place. You can create your own system for organising your files and documents. Files on computers serve as written documents for bookkeeping and document storage. These electronic files must be retained just as paper receipts; back up your files regularly on an external drive and store it in a safe place. You should keep these records for property and other assets you own for as long as you own them, or as long as needed to support tax deductions.
What information you need to keep depends on the purpose of the deduction, the method of payment, and what type of expense it is. Receipts should contain the method of payment (cash, check, credit or debit card), the transaction amount and date, and a list of items or services bought. Checks should contain the amount, date, payee's name, and check number. Statements should contain, where applicable, the amounts, payee's name, posting dates, payee codes, and itemised transaction lists. Investment records should include the assets' purchase prices, sales prices, commissions, reinvested dividends, stock splits, and the original issue discount (OID).