The Internal Revenue Service requires taxpayers to keep records that support a particular tax return until “the period of limitations for that return runs out.” Generally, taxpayers must keep their tax records for at least three years from the date the tax return is filed or the due date of the tax return, whichever is later. However, under certain circumstances, taxpayers are required to maintain tax records for a longer period of time.
When the IRS conducts an audit, it will ask you to prove or explain the information provided in the tax return. In order to do so, you should keep all records that support an item of income or deductions until the period of limitation runs out. The period of limitation is the time during which you can amend the tax return to claim a credit or refund or the IRS can assess additional taxes.
Types of Tax Records to Keep
Taxpayers should keep all W-2 and 1099 forms and bank statements to prove income. Sales slips, invoices, receipts, canceled checks, written communications and other proofs of payments should be saved to document expenses. Documents pertaining to a property, such as closing statements, purchase and sales invoices, insurance records and receipts for home improvement costs, should also be retained. Investment records such as brokerage or mutual fund statements and Forms 2439 should also be kept. These items are not an exhaustive list -- any documents that are needed to support the original tax return must be kept.
General Periods of Limitation
Generally, if you owe additional tax, you must keep tax records for a minimum of three years. However, this three-year rule does not apply if you do not report income that should have been reported, and the income is 25 percent of the gross income shown on the return (keep tax records for six years in this case); you file a fraudulent return (keep tax records indefinitely); or you do not file a return (keep tax records indefinitely).
Other Periods of Limitation
If you claim a credit or a refund after you have already filed your return, you must keep tax records for three years from the date you filed the original return or two years from the date the tax has been paid, whichever is later. If you file a claim for a loss from worthless securities or bad debt deduction, keep related records for seven years. Keep employment tax records for at least four years after the tax was due or was paid, whichever is later. Finally, keep property records until the period of limitation expires for the year in which you dispose of the property in a taxable disposition.
For most taxpayers, tax returns and supporting tax records are not voluminous. Thus, unless the task is truly too tedious, it may be advisable to keep all tax records. Although the general rule usually precludes the IRS from examining tax returns older than three years, it can inspect older records if it determines that a tax return was filed fraudulently. In addition, being able to access older records may prove helpful in filling out future tax returns.
I am a securities law attorney, currently practicing in Pennsylvania. I graduated from Villanova University School of Law. I received my undergraduate education from Carnegie Mellon University where I graduated with honors with a B.S. in Business Administration. I've written articles for eHow.