When it comes to tax returns, the rule of thumb is to store those suckers for seven years in case the Internal Revenue Service or state government has some questions.
But for most taxpayers, that’s probably overdoing it.
How long you should keep them – and any supporting documents such as W-2s and 1099s – depends on your tax situation for the year and when that period of limitations for that tax return runs out.
The period of limitations is how long you have to amend your tax return to claim a credit or refund, or how long the IRS has to assess additional tax. You may also want to keep W-2s and other supporting documents longer than the IRS guidelines for other purposes.
Most taxpayers: Three years
The statute of limitations for an IRS audit expires after three years. That means most taxpayers should keep their tax records for three years after the date they filed their return, or two years after they paid tax – whichever is later.
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There are three exceptions to the IRS audit time limit. The agency can go back six years for an audit if you under-reported your gross income by 25 percent or more.
The IRS can also audit returns that claim a capital loss on worthless securities or take a deduction for bad debt, up to seven years after the return was filed.
If you didn’t file a tax return or filed a fraudulent one, there is no statute of limitations for an IRS audit. In these cases, keep all your records indefinitely.
Other tax-related documents
The IRS also recommends taxpayers hold onto employment tax records for at least four years after the date that the tax is due or paid – whichever is later….Read more>>