There is a great deal of dispute on how long you should keep tax records, and what should be included in those records. Is saving a return enough, or do you need to keep copies of W-2s, receipts for expenses, and any forms filed in addition to your business tax reports or 1040? You’ll find a lot of different answers if you ask this question online.
The IRS recommends that you keep tax records and paperwork for three or four years after the date of filing. They do amend this statement if you owe money that you can’t pay immediately. If you owe back taxes or are making payments on them, then the IRS suggests your keep your tax records for four years after the last payment has been made. They do concede that some companies, individuals and the like could want to see your records from years previous to the four year date.
There’s something of a problem with the IRS suggestion. They have ten years to find mistakes in your taxes and collect on any amounts you may have underpaid. Generally, the IRS won’t look that far back, so some financial experts suggest you hold onto tax records, receipts, W-2s, and et cetera for seven years. This compromise seems a little silly. If technically the IRS can call you to account for taxes you filed ten years ago, it would seem prudent to keep the forms et al, for ten years. Even if it is not likely you’ll need a return from ten years prior, it would be good to have that information if you ever need it.
Others differ and feel that tax records should be kept always. There may be some sense to this suggestion, especially in keeping W-2s. The reason you may want to hang onto W-2s is clearly stated when you receive yearly reports on how much social security you may be entitled to when you retire. If you have paid more social security than the Social Security Administration estimates, you may be entitled to slightly higher retirement benefits. At the very least, plan on checking W-2s or 1099 misc. forms against Social Security Reports to make sure you aren’t being shorted.
Tax records can be required for a number of things. When you apply for student loans or financial aid for school for yourself or children, you may need to submit copies of a couple of years’ returns. If your tax paperwork is for a business, you may need this information to make full disclosure to the public. It’s best to err on the side of caution, and keep the records longer than you need. A simple two-drawer file cabinet will hold records and related paperwork nicely, and is a reasonable investment to make so that you can hold your records securely.