Keeping Tax Papers
Keep anything related to your tax return for at least three years after you file.
In general, the IRS has up to three years after you file your tax return to complete an audit of you. So you will want to keep anything related to your tax return such as W-2 forms, 1099 forms, and receipts or canceled checks for deductible items for at least three years after you file. For example, if you filed on April 15, 2007 for the 2006 tax year, keep any records related to your taxes until at least April 16, 2010.
To be completely safe, you'll want to keep your records for six years. The IRS can audit you for up to six years after you filed a return if it suspects that you underreported your income by 25% or more.
In addition you should keep records showing purchases of real estate, stocks, and other investments for at least three years after you sell the asset. If you are audited, you must be able to show your taxable gain or loss. If you have rolled-over gains from the sale of a residence, which was allowed under the previous tax law, keep records of every purchase and sale made, until you sell your current home.
For More Information
If you are a small business owner, Tax Savvy for Small Business, by Frederick Daily (Nolo), will help you develop the best tax plan for your business, learn the ins and outs of the tax code, and create comprehensive strategies to get back the most from the IRS.