Posted July 2015
Perhaps one of the most repeatedly asked questions of accountants (just ahead of “Why is my neighbor paying less in taxes than I am when we both are the same?”). So I will try to address it simply.
Audits can occur any time up to 3 years after you filed the return, including due dates. So to be simple, I usually suggest 5 years.
What do you need to save? Only those items that support deductions (or the income reported for a business, etc.) taken on a tax return. You do not need to save grocery receipts unless, i.e., you run a Child Care facility out of your home. You don’t need to save utility bills unless you are claiming an office-in-home deduction.
If it is not tax related, you do not need to save it.
Me … I save things for 7 years, probably because I am compulsive (and too lazy to thin things out). And now that I store everything electronically, I don’t even think of deleting items (because I never know when I will need to see what I paid for a burrito at Chipotle in 2008 ).
There are some things to save regardless of tax consequences.
Purchases of big ticket, expensive, type items … you want to save those for insurance purposes. Keep those in a separate file. Or better yet, scan them and save them as part of your Quicken file.
One caution: If you have underreported your income by 25% or more, the statute of limitations has not started running so you need the records then for all such years if audited.
Caveat: I am not an attorney and do not play one on TV. I am also not an insurance agent. The preceding are just guides and if you have more detailed questions about such records, please speak with your attorney, insurance agent, or your CPA.