How long does old Doc White suggest retaining federal and state income tax records?

The recommendation to retain federal and state income tax records for 3-7 years is rooted in the tax regulations and the potential for audits by the IRS. The IRS typically has a three-year statute of limitations to audit a return if it does not identify any substantial errors, which is why many people consider retaining their records for at least that period. However, if there are underreported income amounts or if the taxpayer claims a loss that is particularly large, the IRS can extend the audit period up to seven years.

In addition, state tax authorities may have similar timelines, although they can vary significantly from one state to another. Keeping records for this duration ensures that you are prepared in the event of an audit and can provide the necessary documentation to substantiate your claims. Therefore, retaining tax records for 3-7 years provides a prudent balance between being organized for future reference and complying with potential audit requirements.