It is a general rule that it is best to store your tax records in case you ever get audited than to simply throw them out and not have them when you require them. Unfortunately, you will end up saving more papers and documents than you need to keep. However, many people have really no idea whatsoever when it comes to being aware of how long they must store tax records before they can finally discard them and throw them into the shredder. The constant fear that once the old tax records are discarded, the IRS might come knocking. So what is the real truth when it comes to which tax records you should to keep? How long before you can finally throw them out and not fear of any potential IRS issues?

The first criteria is the official statute of limitations implemented by the Internal Revenue Service. Within 10 years, the IRS can still audit your tax records. They can no longer collect those taxes or audit those returns after that. Essentially, records can get lost; thus, the implementation of the statute of limitations. So even if you can no longer pursue refunds beyond this 10-year period, your IRS issues also essentially disappear.

The second criteria you'll wish to use as a guide is the three-year rule. Basically, there is a three-year statute of limitations for the assessment of additional taxes. For instance, the 3-year period starts from the date the original tax return was filed if you want more money from a refund. But this rule has a few exceptions. For example, the limitations period will actually be six years if you only reported a portion of your total income and the unreported figure is 25% of the the income reported. Another exception occurs when you possess a worthless security and decided to claim a loss on that security. This has a limitation period of 7 years. Lastly, if you decide to not file a return, or simply file a tax return which in fact is really spurious, then there is no statute of limitations. The IRS can then pursue you anytime.

Before you throw documents out, assess your odds of being audited. If an audit is likely, then it's advised to save documents that would support your case like employment, brokerage, and bank statements, capital losses and gains, tax returns, business records, and expenses on your home for the whole 10-year statute of limitations period. You'll be prepared against IRS problems this way.