What Tax Records Should You Keep and for How Long?

As part of the process of preparing your income tax return, you have probably amassed an impressive pile of paper documentation. Now that you've completed your return, what do you do with the paper?

The Internal Revenue Service (IRS) expects you to keep records so that you can prepare a complete and accurate income tax return. The law does not require any special form of records. However, you should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim.

"If you file a claim for refund, you must be able to prove by your records that you have overpaid your tax," the IRS says.

Hanging onto supporting documents

With the exception of a few special tax forms, like a W-2, you don't send the documents to the IRS with your tax return. So how long do you have to hang onto them? There isn't really a simple answer.

According to the IRS, you "must keep your records for as long as they are important for the federal tax law." That means you need to keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out.

For assessment of tax you owe, this generally is three years from the date you filed the return. For filing a claim for credit or refund, this generally is three years from the date you filed the original return or two years from the date you paid the tax -- whichever is later.

Returns filed before the due date are treated as filed on the due date.

Longer period of limitations

If you did not report income that you should have reported on your return, and it is more than 25 percent of the income shown on the return, the period of limitations does not run out until six years after you filed the return.

If a return is false or fraudulent with intent to evade tax, or if no return is filed, an action can generally be brought at any time. If you are ever accused of fraud, you will certainly want to have documents that support your innocense.

Also, you may need to keep records relating to the basis of property longer than the period of limitations. Keep those records as long as they are important in figuring the basis of the original or replacement property.

Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you.

Keep those W-2s

If you receive a Form W-2 from your employer, the IRS recommends that you keep Copy C until you begin receiving social security benefits. This will help protect your benefits in case there is a question about your work record or earnings in a particular year.

What about copies of your tax returns themselves? It's probably a good idea to keep those as part of your permanent files.

"You should keep copies of tax returns you have filed and the tax forms package as part of your records," the IRS says. "They may be helpful in amending filed returns or preparing future ones."

If you need a copy of a prior year tax return, you can get it from the IRS. Use Form 4506, Request for Copy of Tax Return. There is a charge for a copy of a return, which you must pay with Form 4506. It may take up to 60 calendar days to process your request.