Keep these things for 3 years in case you get audited by the IRS

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When you e-file your tax return, you're generally not required to send in any of your tax documentation along with your return, so it's pretty easy to lose, misplace, or simply throw away W-2s and receipts. However, in the event of an audit, you'll need to have the proper documentation available or you could find yourself on the hook for more taxes, simply because you can't prove that you're entitled to the deductions and credits you claim. Here's what you should save, and how long you need to keep these items.

What documents should you keep?
This isn't meant to be an exhaustive list, but if any of these apply to your tax return, you should definitely hang on to them.

• W-2s
• 1099 forms -- there are several kinds of 1099s, with purposes ranging from dividends to self-employment income. Save them all.
• Any tax forms you receive from your brokerage
• Any records showing money going into (or out of) retirement accounts. This could mean statements from your brokerage, cancelled checks, or bank statements.
• Charitable donation documentation -- whether it's for cash donations or property
• Receipts for all medical expenses, if they're greater than 10% of your AGI
• Mortgage interest statement
• Property tax receipts
• Receipts for other deductible items, such as job search expenses, moving expenses, vehicle sales taxes, and unreimbursed business expenses.
• Child care documentation
• Tuition statements and any receipts for deductible higher education expenses like required textbooks.
• Documents related to a life event, such as a marriage, divorce, or birth of a child.

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How long should you keep these?
The short answer is three years -- this is the IRS's standard period of limitations to assess additional tax. However, there are certain situations that require you to keep documentation for longer.

• If you claim a loss from worthless securities or bad debt, the period of limitations increases to seven years.
• If you don't report income that you should have reported (whether you know it or not), and it is more than 25% of the gross income shown on your return, the IRS has six years to assess additional tax.
• Although I'm sure it doesn't apply to anyone reading this, if you file a fraudulent return or don't file a return at all, the IRS advises you to keep your records indefinitely. However, if you do either of these things, finding your W-2s will be the least of your concerns.
• Finally, business owners should keep employment tax records for four years after the date that the tax is due or is actually paid, whichever is later.

Another point I'd like to make is that these guidelines only apply to your federal tax returns. Most states have their own income tax, and many of these have longer standard limitation periods than three years.

Now, you don't necessarily need to keep these records in paper form. Many tax documents are available in electronic form, and you can scan your receipts and keep them on a flash drive or on your computer. The important thing is that they're readily accessible if you need them.

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It's better to over-prepare
When it comes to your taxes, it's better to err on the side of caution. What I mean by this is even if you're pretty sure you don't need to save a certain piece of documentation, save it anyway. And, if a few years have passed and you feel your chances of an audit at this point are slim-to-none, you're probably right, but what's the harm in keeping a shoebox full of papers for another year or two?

The point is that even though an audit is unlikely, failure to properly document every single deduction and credit could potentially cost you lots of money that you shouldn't have to pay, so tax documentation should be taken rather seriously.

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