Keeping your tax records organized year-round is a good practice and will keep you from hastily assembling your documents for your annual tax preparation appointment. If you are diligent about maintaining your tax records, you won’t have to worry about losing a valuable deduction because you forgot to list expenses on your return, or having unsubstantiated items disallowed in the event of an audit.
Generally, your tax returns can be audited up to three years after filing. However, if income is underreported more than 25%, the IRS can collect underpaid taxes up to six years later. So, keeping good records means you’ll always be able to verify what you report on your tax return. Hang on to your tax records for seven years.