Once you have finished preparing and filing your income tax return, what do you do with your supporting documentation? Which records do you need to keep, how should you file them, and how long do you need to keep them?
According to the IRS
The IRS does not tell you how to organize and file your records. But in its Publication 552 on Recordkeeping for Individuals it states that you should “keep them in a manner that allows you and the IRS to determine your correct tax”.
As far as how long to keep records, according to the IRS, “You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support items shown on your return until the period of limitations for that return runs out.”
The period of limitations is the time in which you can file an amended return, or the IRS can review or audit your return and assess additional tax. If we set aside the fact that the period of limitations is unlimited in the case of a fraudulent return, or when a return is not filed at all, the general period of limitations is 3 years if you owe additional tax, or the later of 3 years or 2 years after the tax was paid if you file a claim for a credit or refund after you filed your return.
If you do not report income that you should and it is more than 25% of the gross income shown on your return, you need to keep your records for 6 years, and if you file a claim for a loss from worthless securities, you should keep your records for 7 years.