People often want to know how long they should store old tax returns and other tax documentation. I recommend saving W-2 wage forms and copies of all your income tax returns indefinitely, or as long as you can. I keep documentation supporting annual income and deductible expenses until the audit time window has passed. After that, I wait an additional year, before I consider tossing receipts, cancelled checks, bank/credit card statements, etc.
The Internal Revenue Service has three years to audit an income tax return. The three years are counted from the filing deadline (normally April 15) or the date you actually filed the tax return, whichever is later. I recommend counting from April 30, because many years the filing deadline is actually one or more days after April 15.
The California Franchise Tax Board has fours years to audit an income tax return. Taxpayers in other states should check with their state authorities.
Note that documentation supporting certain assets should be held longer....until well after the asset is disposed of and the transaction has been reported.
Read more for the specific recommendations I give my California tax clients.
RETAIN ALL SUPPORTING DOCUMENTATION FOR AT LEAST FIVE (5) YEARS FROM APRIL 30 OF THE FILING DEADLINE YEAR OR THE ACTUAL FILING DATE, WHICHEVER IS LATER.
RETAIN ALL SUPPORTING RECORDS FOR THE ACQUISITION OF REAL ESTATE
(INCLUDING IMPROVEMENTS), DEPRECIABLE BUSINESS PROPERTY, STOCKS, AND
OTHER INVESTMENTS UNTIL THE SALE IS REPORTED PLUS FIVE (5) YEARS.
RETAIN YOUR COPIES OF TAX RETURNS INDEFINITELY,
INCLUDING W-2s AND ALL SCHEDULES.
(1) If you file your 2011 income tax return on time (no extensions or amendments), wait five years from April 30, 2012. Retain all 2011 supporting documentation until at least April 30, 2017.
(2) If you file your 2011 income tax return on September 21, 2012, wait five years from that date. Retain all 2011 supporting documentation until at least September 21, 2017.
(3) If you file your 2011 income tax return on time, start counting the five years from April 30, 2012. If you discover an error and amend the tax return (file a corrected version) on May 22, 2013, restart the five year holding period and retain your 2011 supporting documentation until at least May 22, 2018.
(4) Say you buy a play structure for your child care business on July 8, 2011, but on May 1, 2012, you upgrade to something nicer and sell the old play structure to another provider. If you file your 2012 income tax return by the filing deadline and report the sale, count the five year holding period from April 30, 2013. Retain purchase and sale paperwork for the old play structure until at least April 30, 2018.