After your tax returns have been filed, several questions arise: What should we keep? What should we throw away?  Will you ever need any of these documents again?  Fortunately, recent tax provisions have made it easier for you to part with some of your tax-related clutter.

The IRS Restructuring and Reform Act of 1998 created quite a stir when it shifted the "burden of proof" from the taxpayer to the IRS.  Although it would appear that this would translate into less of a headache for taxpayers (from a record keeping standpoint at least), it doesn't let us off of the hook entirely.  Keeping good records is still the best defense against any future questions that the IRS may bring up.  Here are some basic guidelines:

Copies of returns.  Recent legislation has not changed the basic guidelines regarding retention of copies of your tax returns; your returns (and all supporting documentation) should be kept until the expiration of the statute of limitations for that tax year, which in most cases is three years after the date on which the return was filed.  It's recommended that you keep your tax records for six years, since in some cases where a substantial understatement of income exists, the IRS may go back as far as six years to audit a tax return.  In cases of suspected tax fraud or if you never file a return at all, the statute of limitations never expires.

Personal residence.  With the new tax provisions allowing couples to take the first $500,000 of profits from the sale of their home tax-free, some people may think this a good time to purge all of those escrow documents and improvement records.  And for most people it is true that you only need to keep papers that document how much you paid for the house, the cost of any major improvements, and any depreciation taken over the years.  But before you light a match to the rest of the heap, you need to consider the possibility of the following scenarios:

• Your gain is more than $500,000 when you eventually sell your house.  It could happen.  If you couple past deferred gains from prior home sales with future appreciation and inflation, you could be looking at a substantial gain when you sell your house 15+ years from now.  It is also possible that tax laws will change in that time, meaning you will want every scrap of documentation that will support a larger cost basis in the home sold.

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