Got a Shredder Handy?

I have tons of bank statements, tax returns and pay stubs. How long should I keep them?

When paperwork starts to become overwhelming, the first thing to do is buy a shredder. After all, with identity theft rampant, the days of just chucking unwanted papers into the trash are over. With paper guillotine in hand, here's a rundown of what can be tossed, and when.

First, let's talk taxes. At the very minimum, you should keep your tax returns and all tax-related paperwork for three years after you file. This is the window of time — known as the period of limitations — when the IRS can audit you. (The period of limitations is six years for those who fail to report more than 25% of their income, and there's no time limit for those who file fraudulent returns.)

That said, you might want to hold on to your tax returns longer than that as a record of the income you earned in a particular year, says certified public accountant (CPA) Ed Slott of Rockville Centre, N.Y. For those who'd like to become true paper minimalists, however, know that you can always get copies of old returns from the IRS by filling out Form 4506 — Request for Copy or Transcript of Tax Form.

You should also hold on to property records and records of home improvements for tax purposes, since these can sometimes be used to adjust your cost basis when you sell (making it all the more likely that your home sale will be tax-free). Just keep in mind that there's a difference between a remodeling job and a repair, which unfortunately doesn't increase your cost basis. Fix a leaky roof — that's repair; add a deck to the back of your house — that's home improvement, says Fred Daily, a tax attorney in San Francisco and author of "Stand Up to the IRS." You should hang on to these records for at least three years after you sell the property, Daily says. Landlords, on the other hand, should hold on to remodeling and repair bills (as well as utility bills) for rental properties for at least three years, as these expenses are deductible from rental income.

Now let's talk about what you can shred. Start with the pay stubs: You don't need those as long as you have your tax returns, which provide a permanent record of your income, says Slott. And sales receipts should generally be held long enough to balance against bank statements or credit card statements (if you suspect fraud). Assuming you've been billed correctly, these receipts can be tossed. Some exceptions: Hang on to receipts for big items under warranty until the warranty expires. You also should keep receipts for anything potentially tax-deductible, such as donations to charities or home-office equipment for three years after you file.

Most bank statements and credit card statements can also be immediately destroyed — except those that list a deductible expense (which, again, you should hang on to for at least three years after you file). If it makes you uncomfortable to get rid of these statements, check to see how long your bank or credit card company will make past statements available to you upon request.

As far as investment statements go, monthly or quarterly investment statements can be shredded once you get your annual statement, which lists all transactions. You should hold on to your annual statements for at least three years after you sell all of the equities listed there, says Tom Ochsenschlager, a partner at tax and accounting firm Grant Thornton in Washington, D.C. You'll need those statements to calculate your cost basis on your sale — and you'll want to have them handy should you be audited. Keep in mind, most brokers keep copies of your investment records, but might charge you a fee if you request a copy.

And you'll want to hold on to statements that show the sale of worthless securities for even longer, says Slott, who recommends you keep them for at least seven years. That's the time you have to amend a tax return to claim a refund from bad debts or worthless securities. So if you bought shares of a dot-com that went belly-up in 2000 and you forgot to claim the loss on your return, you have until 2007 to do it.

For more on recordkeeping, read IRS publication 552.