Q. How long is it necessary to keep tax records? Some people have said 7 years, others 4, and some 3. I'm not certain how long to keep my records. Can you solve this mystery for me?
A. Generally, I advise my clients to keep records for 4 years, even though the federal statute of limitations runs out on the later of 3 years after the filing date or the due date of the return. This is because of the state statute of limitations, which may differ from the federal. I believe the 7 years pertains to payroll records, if you have employees, but the IRS says generally 3 years. Here is a link to an IRS Tax Tip which will have links to several of their other publications. I try to impress my clients with the need to keep records of assets which may be taxable or reportable when sold or otherwise disposed. This is especially true for all real estate transactions, stocks & other securities purchased and not yet disposed, and assets used in business.