As a general rule, the IRS recommends that you keep your tax records and supporting documentation until the statute of limitations runs out for filing returns or filing for refunds. For most taxpayers, that means keeping your records for three years following the date of filing or the due date of your tax return, whichever is later. So, for example, if you filed your 2013 tax return on Tax Day, April 15, 2014, you’ll want to keep those returns and those records until April 15, 2017.
To be on the safe side I would suggest keeping your returns and all supporting documentation for at least seven years because the three year rule applies only to good-faith errors. When the IRS challenges your return, the burden of evidence verifying your claims rests entirely with you.
The IRS generally has only three years from the filing date or due date of the return (whichever is later) to assess an additional tax if you did not accurately report your income, but there are some exceptions. For instance, you should keep tax forms for retirement accounts such as IRAs until seven years after the account is completely wiped out. If you file a claim for a loss of worthless securities or bad debt deduction, you must keep records for seven years. Additionally, if you amortize, depreciate, or buy or sell property, you should keep property records until the statute of limitations expires for the year in which you dispose of the property. Remember, property isn’t just land or buildings; it includes stock, office equipment and other assets.
If you omit more than 25% of your gross income from your return, the IRS has six years instead of three to assess an additional tax. Also, if you file a fraudulent return or don’t file one at all (we don’t recommend either!), the statute of limitations never expires.
If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
Before throwing your old returns away, check to make sure you do not need to keep it for other purposes. For instance, certain creditors and even some insurance companies may require you to keep records longer than the IRS does. If you do decide to get rid of tax documents, make sure to shred them thoroughly. Identity thieves can obtain account numbers and other data by rummaging through your trash.
Be sure to keep your records organized. You can arrange them by year and then store them in a safe place. You can store your hard copies of tax documents in a fire-proof safe or to save space you can scan your records and store them electronically. You just need to ensure that your scanned or electronic receipts are as accurate as your paper records and you must be able to index, store, preserve, retrieve, and reproduce the records. In other words, you need to have your records organized and be able to produce them in a hard copy form if needed.