Many taxpayers are confused about how long they should keep tax records. The term "tax records" refers to your tax returns and
documents that support information in returns. These documents can include receipts, bank statements, 1099s, etc. If you are one of unlucky few to be audited, these records will be vital to fending off IRS. Tax Returns
To protect yourself from a nasty audit, you should keep all of your tax returns indefinitely. The IRS has been known to lose or misplace tax returns. While conspiracy advocates argue that this is evidence of a nefarious scheme, simple fact is that IRS receives millions of returns over a three-month period and lost returns are inevitable. So how do you protect yourself? You keep copies of every single tax return.
A quick word on IRS e-file program. If you file your returns electronically, make sure you get copies from company that filed your return. All such entities are required by law to provide you with paper copies.
Records Supporting Tax Returns
You should keep supporting tax records for a period of six years from date returns were actually filed. In general IRS only has three years to audit you from filing date. For example, if you filed your 2000 tax return on April 15, 2001, IRS would have to start an audit by April 15, 2004. Keep in mind that if you filed an extension, IRS will have three years from date you submitted return. As is always case with taxes, there are exceptions to this general time period.
If your tax return looks like great American novel, running of three-year audit period may not save you. Failure to report more than 25% of your gross income gives IRS an additional three years to pursue you. Using previous example, IRS would have until April 15, 2007 to audit your 2000 tax return.
