Woman looking at bills and receipts on floor © David Sacks-Lifesize-Getty Images

Related topics: taxes, tax audit, financial planning, online banking, Liz Weston

You may not be ready to go entirely paperless, but chances are good you're hanging on to a lot more dead trees than you should.

Now is a great time to remedy that. After you've filed your tax return, you can get serious about reducing your financial clutter -- now and in the future.

Here's what you need to know:

There's nothing special about scraps of paper. The Internal Revenue Service accepts electronic records, so you can scan receipts and download documents rather than hanging on to the paper versions. Often, you don't even need to download, now that many financial institutions offer quick access to statements online. My bank, for example, gives free online access to my statements for the past seven years. My credit card issuers offer the same for six to seven years, while my brokerage offers free access for 10 years. Check with your institutions to see about their policies.

"Seven" is a magic number. That's how long the IRS typically has to audit your tax return. Your biggest risk is in the first three years after a return is due; the 2010 return that's due this April can be audited under normal circumstances until April 2014. The IRS can extend that deadline by three years, to April 2017, if it suspects you underreported your income by 25% or more. There's no deadline if you committed fraud or failed to file a return, but we'll assume you're not a crook and have stayed up-to-date. If you write off a bad debt or claim a tax break for worthless securities, you need to keep proof for seven years after filing -- or until April 2018, for your 2010 return.

Liz Weston

Liz Weston

You should keep some stuff longer.

Though you can shred supporting documents for your tax returns after the danger of audit has passed, many tax experts suggest retaining your actual tax returns indefinitely in case you or your heirs need access to the information they contain. Whether you keep scans or the actual paperwork is up to you. Also:

  • Documents that pertain to an asset you own outside a retirement fund -- confirmations showing the purchase price of a stock, for example, or improvements on a house -- should be kept for as long as you own the asset, plus seven years.
  • W-2 forms should be kept until you start drawing Social Security.
  • Three tax forms relating to retirement accounts should be kept until those accounts are drained. Those include Form 8606, which helps you calculate your tax basis for future retirement-plan withdrawals; Form 5498, which shows individual retirement account and Roth IRA contributions; and Form 1099-R, which shows IRA withdrawals.
  • For all loans, including mortgages, you can ditch monthly or quarterly statements once you get the year-end summaries, and you can destroy the year-end summaries when you've paid off the loans. However, you should keep indefinitely the final notice showing a loan has been paid off in case a disorganized lender or unscrupulous collector pretends the debt hasn't been paid and tries to dun you.
  • For insurance purposes, keep receipts and appraisals for big purchases as long as you own the items.
  • Certain documents -- including birth, marriage and death certificates, divorce papers and military discharge papers -- should be kept for life.

Have good backups. Even if you insist on clinging to paper, you should consider scanning and storing copies of essential documents off-site in case your home is destroyed. You can back up important files to CDs, thumb drives or external hard drives and leave them in a safe-deposit box or with an out-of-state relative, or use online services such as Mozy or Carbonite to store your data in the cloud.

'Good enough' organizing

Now, I'm a big fan of "good enough" organizing. You could go berserk scanning and backing up all of your old documents, but for my money it makes more sense to scan just the items noted under No. 3, above, and then start digitizing your files going forward.

Instead of scanning every last document in your files, expend your energy purging those files. Get yourself a good cross-cut shredder that can handle a dozen or more pages at once, and stuff it with:

  • ATM and bank deposit receipts. Toss them after you reconcile them with your bank statements.
  • Credit card receipts. Once a purchase shows up on your credit card statement, you can ditch the slip -- unless you need it for tax purposes, in which case you can scan it and keep it with that year's tax records.
  • Pay stubs. Shred them once you get your year-end summary.
  • Receipts for minor purchases. After three months, the chances of you returning the item are slim. I have three folders labeled "this month," "last month" and "two months ago." New receipts are dropped into the "this month" folder. Each month I transfer the receipts to the next folder and dump the ones in the "two months ago" file. (I got this receipt-organizing tip from organizer Debbie Stanley's terrific book, "Organize Your Personal Finances in No Time.")
  • Utility bills. If you aren't writing off a home office -- and thus a portion of your utilities -- there's not much reason to hang on to last month's bill, let alone anything before that.
  • Phone and Internet bills. If you deduct a portion of these as a business expense, scan and keep them with that year's tax records. Otherwise, ditch them.
  • Old insurance claims. If the claim was paid, you can shred it after a year. If you wrote off medical costs or a casualty loss on your taxes, however, keep the information with that year's tax records.
  • Social Security statements. When you get a new one, ditch the old one.
  • Workplace retirement-plan statements. Keep the year-end statements for your 401k or 403b and trash the rest.
  • Traditional pension information. If you're lucky enough to have a traditional, defined-benefit pension, hang on to any correspondence you get about it. Employers do go out of business, and the information you receive could help you track down a much-needed benefit when you retire.
  • The dumb stuff. You know what I mean. Expired warranties. Owners manuals for appliances you no longer own. Repair receipts for the car you sold three years ago. Policies from the insurer you've since replaced.

Dry up the paper flood

Finally, think about ways to let less paper into your life, so you won't have to deal with so much of it next year. Those ways can include:

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  • Paperless billing and statements. If you need a bill for tax purposes, you can download it. You can typically access financial statements online for several years, which is as long as you're likely to need them.
  • Automatic payments. You can have a trusted biller take the money directly from your checking account, or have the bills charged to a credit card you pay off in full each month.
  • A system to deal with receipts. Even those of us who have gone mostly paperless are plagued with little paper slips from various transactions. Sort through your wallet regularly to separate out any tax-related receipts and those related to expenses your employer will reimburse. Scan and file those as you go, then consider using the three-folder system I describe above to deal with the rest.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.