Anyway, you 'know' that as soon as the garbage man pulls away from your curb, the IRS will want exactly those documents you threw out. Let's look at what are the rules? What information do you have to hold on to and for how long?

Let's start with your "zone of security", the IRS statute of limitations. This limits the number of years for which the IRS can audit your tax returns. Once that period has expired, the IRS is legally stopped from even asking you questions about those returns.

The idea behind this is, after a period of years, records are lost or misplaced, and memory is not as accurate as it used to be. There's a need for closing things out. Once the statute of limitations for a specific year has expired, the IRS can't go after you for additional taxes. However, you can't go after the IRS for additional refunds, either.

"Three-Year" Rule

In assessing additional taxes, the statute of limitation runs three years from the date you file your return. If you're looking for an added refund, the limitation period is generally the later of three years from the date you filed the original return or two years from the date you paid the taxes. There are exceptions:

- If you do not report all your income and the unreported amount is more than 25% of the gross income that shows on your return, the limitation period is six years. - If you've claimed losses from a worthless securities, the limitation period is extended to seven years.

- If you file a 'fraudulent' return, or don't file at all, the limitations period never begins to run. The IRS can, in fact, get you at any time.

- If you're deciding what records you need or desire to keep, you have to ask what are your chances of an audit. An audit is an IRS verification of items of income and deductions on your return. You must keep records to support those items until the statute of limitations is over.

If you've filed on time and paid what you should, the requirement is to keep your tax records only three years. But some records have to be kept longer than that.

Remember, the "three-year" rule concerns the information on your tax return. Pay attention, some of that information may relate to transactions greater than three years old.

Here's Checklist Of The Documents You Should Hold Onto.

1. Capital gains and losses. Your gains are reduced by your basis -- your cost (including all commissions) plus, with a mutual fund, any reinvested dividends and capital gains. However, you may have bought that stock five years ago, and you've been reinvesting those dividends and capital gains over the last ten years. Also, don't forget those stocks splits. So, you don't ever want to throw these records out until after you sell the securities. Furthermore, then if you're audited, you have to prove those numbers. So, you'll need to keep those records for at least three years after you file the return reporting their sales.

2. Expenses on your home. Cost records for your house and improvements must be kept until the home is sold. It's just good to do, even though most homeowners won't have any tax problems. That's because profit of less than $250,000 on your home ($500,000 on a joint return) isn't subordinate to taxes under the 1997 tax legislation enactment. If the profit is more than $250,000 ($500,000 on a joint return), or if you don't qualify for the full gain exclusion, then you're going to need those records for another three years after that return is filed. Most homeowners won't face that issue thanks to the 1997 tax law, but better safer than sorry.

3. Business records. I must warn you: Business records can be a nightmare. Non-residential real estate is now depreciated over 39 years. You could be audited on the depreciation up to three years after you file the return for the 39th year. That's a long time to hold on to receipts. However, you may need to show proof of those numbers.

4. Employment, bank and brokerage statements. Keep your W-2s, 1099s, brokerage and bank statements to prove income until three years after filing or longer. Don't even think about throwing out checks, receipts, mileage logs, tax diaries and other documentations that confirm your expenses.

5. Tax returns. Keep copies of your tax returns as well. You can't rely on the IRS to actually have a copy of your old returns. I recommend my clients keep tax records for 6 years. The bottom line is that you've got to keep those records until they can no longer affect your tax return, plus the three-year statute. But that's just for tax purposes.

6. Social Security Records. You will need to keep some records for Social Security. Please check with the Social Security Administration each year to confirm that your payments have been appropriately credited. If they are wrong, you will need your W-2 or copies of your Schedule C (if self employed) to prove the right amount. Don't throw out those records until after you've prove out those contributions.

You can confirm your payments and estimate your future benefits by filing Form SSA-7004 with the Social Security Administration. You can download the form, or apply online.

While it may bring you some personal satisfaction to review your financial records from poverty to wealth. It is still probably time to clean out your growing storage.