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When it comes to tax records and how long you should keep them, the answer is far from simple. It is a sensitive issue because in tax matters, the "burden of proof" is on you. You need to keep whatever records the IRS will need to correctly determine your tax liability. You must have the actual records and not merely a computerized summary of your records. For example, you need a canceled check and related invoice to support an expense, not just a computerized check register.

A general rule is that you should keep your tax records for the time period that the IRS can question your return—typically three years after it is filed. As always, there are exceptions to the general rule; to accommodate any exception, it may be advisable to hold onto your records indefinitely. Records for fixed assets must be kept for the entire period you own the asset and then for the three years after the year in which you sell it.

CAUTION: The states in which you may be required to file state income tax returns may have a longer statute of limitations period. Consult your tax professional when determining how long to keep state tax returns and related records.

Guidelines on how long to keep your business records

• Tax returns: You have to keep these for three years. We recommend that you keep them for at least six years.
• Documents supporting your tax return: Should follow the same guidelines as your tax returns.
• Paycheck stubs: Keep these until you get your W-2 and you know it is correct. If they show charitable contributions, keep them with your tax returns.
• Insurance policies: Keep these as long as they are in effect. Sometimes you cancel an insurance policy. You don't need to keep outdated documents.
• Bank and credit card records: This is mostly up to you. A good rule of thumb is two or three years.