You’re probably getting ready to go through last year’s records and prepare for this year. But what should you keep and what can you throw away? Here are some things to keep in mind as you sort through your records.
• Keep records that directly support income and expense items on your tax return. For income, this includes W-2s, 1099s and K-1s. Also keep records of any other income you might have received from other sources. It’s also a good idea to save your bank statements and investment statements from brokers.
• The IRS can audit you within three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your tax records for seven years.
• Retain certain records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested and any major gifts you make or receive.
• Hold on to copies. Keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for Social Security purposes.
For more detailed information on recordkeeping recommendations, see How long should I keep records?