The question of how long to retain important paperwork often depends on the length of any applicable statute of limitation. A "statute of limitation" is a legally imposed time limit or deadline upon which a person or the government must bring an action against you to enforce a law or claim.
Tax Returns and Supporting Documents. The IRS has a "three-year" or "six-year" statute of limitation on tax audits. The "six-year" statute applies where the taxpayer omits additional gross income in excess of 25% of the amount stated on the return, and the "three-year" statute applies to all others. The returns themselves should be retained indefinitely, while any and all documents that support a return (i.e., receipts, statements, W-2s, 1099s, etc.), should be retained for seven years. Note: There is also an "indefinite" statute of limitation, but that applies only to fraudulent or non-filed returns.
Household Paperwork. Purchase receipts, utility bills, credit card and bank statements should be retained as long as they are relevant or supportive of your tax return (see above). However, it is not necessary that you retain duplicate items (i.e., once your bank or credit card statement is reconciled, you can throw away the actual purchase receipt, unless required for a warranty or rebate).
Family Documents. The following documents should be retained indefinitely: Birth, marriage and death certificates, divorce, separation, adoption & custody papers, and citizenship & naturalization documents. Passports, driver's licenses, professional licenses, etc. can, and should, be discarded upon being replaced by updated documents.
Estate Planning Documents. Wills, trusts, advance health care directives, and powers of attorney should be retained indefinitely, even if amended, revoked or replaced. In fact, you should indicate directly on the revoked or replaced documents that they are no longer effective but keep the document. This will avoid any confusion as to which documents are applicable if more than one copy exists.
Legal Documents. The statute of limitations on enforcing written contracts is four (4) years. Therefore, you should retain any contract for at least 4 years after it's completion. Insurance policies should be retained at least as long as the asset insured exists, or as long as it is relevant for tax purposes.
Real Property Documents. All documents related to real property ( such as all deeds, receipts for improvements, and tax information) should be kept for as long as you own the property. In addition, these documents should be retained as long as the proceeds from the sale of any real property are rolled over into another property, as the tax basis may be transferrable.