How to Keep Personal Tax Records

Keep your old tax returns indefinitely.

The yearly tax documentation varies from a few slips of paper to a large number of receipts and other documents. While the paperwork seems cumbersome to store, keeping tax records for several years protects you in case of an audit. You also have the financial documentation necessary to apply for loans or similar financial services. A tax document organization system makes it easier to file your taxes if you tuck away financial documents throughout the year. When tax time rolls around, simply grab your saved financial records.

Things You'll Need

• File drawer
• File box
• Labels

Instructions

1. Label a file drawer or file box for tax records. Divide the drawer or file box by tax year, placing the most recent year in the front. Work toward the back of the drawer in a reverse chronological order.

2. Place the tax return in a separate file folder. Keep the return for at least three years. Keeping your tax returns indefinitely won't take up much room in your file cabinet and gives you a longer record, if necessary.

3. Create a second folder for each year that contains all documents pertaining to your income. Include your W-2 and 1099 forms that show income from jobs. Include other forms and statements that show income from other sources, such as bank statements, a form K-1 or brokerage statements.

4. Establish a folder for each year to hold documents related to your deductible expenses. Include receipts, invoices, proof of payment or other paper documents that show your expenses.

5. Make a folder for each year to hold documentation related to your home if you own one. Store related paperwork in this folder, including invoices, receipts for home improvement projects and documents showing the amount of interest paid on the mortgage.

6. Create a final file for each year to hold miscellaneous tax documentation that doesn't fit into other categories.

7. Store the tax documents for a minimum of three years, which is the time frame the IRS has to review your return and assess more taxes if the forms were inaccurate. This period is longer if the IRS suspects certain discrepancies in your return, including fraudulent returns, omitting income totaling 25 percent of your gross income or not filing a return. In these cases, keep your tax documentation for at least seven years.

References

• IRS.gov: Publication 552 -- Main Content
• Bankrate: Records the IRS Says to Keep -- And for How Long; Kay Bell