About saving financial records:

The Internal Revenue Service has 6 years to challenge a return on which it believes income was underreported by 25 percent or more.

• Save your financial records and supporting documents for as long as the Internal Revenue Service might need them. That's not a long as you might think, unless you have filed fraudulent tax returns and fear being caught.
  
  
• Supporting documents or "backup paperwork" - meaning any and all information which helps determine what you owe or supports your contention that you earned a deduction must be kept for three years after your return was due.
  
  
• Keep your old returns indefinitely, as they can be important for compiling future returns, especially if they cover the sale of property.
  
  
• Keep anything related to home improvements, capital gains and reinvested dividends, as it will be necessary in calculating accurate profit or loss on investments or the sale of real estate.

Tax preparation software:

The Internal Revenue Service is making a massive drive to encourage electronic tax filings. In a compromise to avoid the IRS from offering their own tax-preparation software free to the public, numerous software companies (members of an industry alliance) have agreed to provide their services free through the IRS Web site, to a minimum of 60% of the nation's taxpayers. Over 3.5 million returns have been filed electronically, through this program.

• There are over 18 software programs, including versions of the top-selling brands, available free through www.irs.gov.
  
  
• Intuit's TurboTax and H&R Block software is free only for federal returns, not for state returns.
  
  
• Many companies limit their free offer based on income and other factors and their terms of usage are subject to change at anytime.
  
  
• Taxpayers with complicated returns may need to purchase higher-end software or see a tax professional.

Tax Law Enforcement:

Washington is increasing IRS funding thus providing "additional resources to
examine more tax returns, collect past due taxes and investigate cases of tax avoidance." This will raise the heat on delinquent and dishonest taxpayers. This means that more scrutiny of all returns.

HOT TIPS:

Save your financial records and supporting documents for as long as the Internal Revenue Service might need them.

Keep your old returns indefinitely, as they can be important for compiling future returns, especially if they cover the sale of property.

Keep anything related to home improvements, capital gains and reinvested dividends, as it will be necessary in calculating accurate profit or loss on investments or the sale of real estate.