Tax record keeping can be, well, taxing. However, it is important. The IRS created Publication 552: Recordkeeping for Individuals to help guide taxpayers in keeping their records. They request that you keep them “in an orderly fashion,” but not necessarily in any particular order.
The basic review period for the IRS is three years. However, if the IRS suspects that you have filed incorrectly, such as underreporting, they can knock on your door up to six years later! If they think you incorrectly reported a worthless stock or other bad investment, they have seven years to initiate an investigation.
You likely keep records on your income, expenses, home payments, and your investments and if you do not owe back taxes, you should keep these records for at least three years. However, if you have failed to report more than 25 percent of your income, you should keep these records for at least six years. If you file a claim for a credit or a refund after you filed your return, you should keep your documents for at least three years or for two years after you file the claim. If you file a claim for worthless securities, you should keep your paperwork for at least seven years. If you file a fraudulent return or fail to file a return (which would be extremely inadvisable), you should keep these records indefinitely.
The records you should keep regarding your income should include your Forms W-2, 1099, and K-1, bank statements, and brokerage statements. For any expenses you have, keep sales slips, invoices, receipts, and canceled checks, or other proofs of payment. If you own a home, it is important to keep closing statements, purchase and sales invoices, proof of payment, insurance records, and Form 2119 if applicable. If you made any investments, you should keep brokerage statements, mutual fund statements, and Forms 1099 and 2439.
If in doubt, keep all records for as long as you can as long as you can somehow make space for them. Also, be advised that it is best to shred or destroy these documents when you decide to get rid of them because they contain very important personal information that should not fall into the wrong hands.