As a rule, keep your tax records and supporting documentation until the statute of limitations runs out for filing returns or filing for a refund. For most taxpayers, that means you’ll want to keep those 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 2011 tax return on April 17, 2012, you’ll want to keep those returns and those records until April 17, 2015.
If you don’t report all of the income that you should report exactly (if you omit more than 25% of the gross income shown on your return), the statute of limitations is extended. You’ll want to keep those records for six years.
If you file a clearly fraudulent return or if you don’t file a return at all, the statute of limitations never actually runs.In that event, you’ll want to hold onto your records, well, forever (really, it’s much less work to simply file).
Supporting documentation for your tax returns includes not only your forms W-2 and 1099, but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
If you claim depreciation, amortization or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. They include deeds, titles and cost basis records. Similarly, if you claim any special deductions or credits, you may need to keep your records a little longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for seven years).
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 are paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
You’ll want to keep your records organized — I recommend arranging them by year — and store them in a safe place. The IRS has also been accepting electronic copies of receipts since 1997 so scan your documents and keep them electronically to save you some space. Just be sure they are legible.