- You should hold on to most of your tax returns for at least three years.
- In addition to your return, keep supporting documents like W-2s, 1099s, and deduction-related receipts.
- There are many exceptions that may require you to keep your tax records for longer.
Whenever you file taxes, a trail of documents is involved. After you've settled up with the Internal Revenue Service (IRS), you might be tempted to just toss all that paperwork. However, the IRS recommends that you preserve your tax returns and related documents for at least three years.
In some cases, you may need to keep them even longer.
Here are the guidelines to follow when deciding how long to keep yours on hand.
General IRS guidelines
3 years
"The general rule of thumb is to keep your tax returns for at least three years from the date you filed it, the due date, or the date you paid the tax, whichever is later," explains Tom Taulli, an enrolled agent.
Within three years, you can amend your tax return in order to claim a credit or refund. The IRS statute of limitations also allows for questioning or auditing a return during that timeframe. If the IRS has questions about your tax returns or wants to perform an audit, you'll probably be asked to produce your tax records.
In certain situations, you may need to keep your tax returns for a longer period. Generally, a more complicated tax situation will lead to a longer required holding period.
6 years
The IRS requires you to keep your tax records for six years if you underreport income that accounts for more than 25% of the gross income.
This extended time requirement won't apply if you have a cut-and-dried tax return with straightforward W-2 income. But if you have a complicated return that intentionally underreports income, then the IRS has six years to check the records and assess more tax.
Quick tip: The IRS receives information from a variety of sources about your income and uses an automated system to spot potential discrepancies. If there is a potential discrepancy, a tax examiner will review the document further. Depending on what they find, the IRS may assess additional taxes.
7+ years
If you claim a capital loss from securities or bad debt on your return, keep the records for seven years. The extended record-holding period gives the IRS ample time to check into your claim to confirm that the appropriate amount of tax was paid.
In addition to your tax return, make sure to keep detailed records of the capital loss itself.
Tax filers who have paid taxes to a foreign government can claim a credit or itemized deduction on those taxes up to 10 years later. The credits and itemized deductions are only available if the same income is subject to U.S. tax. But hanging on to those tax records for the 10 years will help you justify the claim if the need arises.
Beyond the 10-year mark, the IRS only recommends holding onto your tax records if you've filed a fraudulent return or didn't file a return at all. That's right. The IRS actually recommends holding onto these records if you've willfully broken the tax code. But of course, it is absolutely not recommended that you skip tax filing or intentionally commit fraud on your tax return.
Specific record retention periods
Supporting documents
You should keep any supporting documentation for at least three years. The things you should keep include your W-2 forms, 1099 forms, records of unemployment payments, credit card receipts, invoices, mileage records, statements detailing any securities transactions you made, and documents detailing contributions made to retirement-savings accounts.
Property records
If you are a property owner, there are additional time requirements to consider. For one, you'll definitely want to hold the property tax records for the duration of your possession, as well as the closing statement and receipts for any significant renovations or repairs you make. These records will help you determine any depreciation, amortization, depletion deductions, and capital gains related to the property. After you sell the property, you'll need to keep the records until the period of limitations expires.
But there's a catch when it comes to nontaxable exchanges. If you obtain property in a nontaxable exchange, you'll need to keep the tax records of both the old property and the new property until the period of limitations expires when you sell the new property.
Quick tip: Section 1031 of the tax code allows you to exchange real estate properties of the same type without recognizing a capital gain or loss. Investors and businesses can use this opportunity to further their investment goals without incurring a big tax bill.
Employment tax records
Businesses should keep employment tax records, or payroll records, for at least four years after the last completed tax filing.
State record retention
State tax agencies operate independently of the IRS. Though many have similar guidance to the IRS when it comes to keeping tax records, you should double-check with your state.
Tips for organizing and storing records
The IRS clearly outlines the guidelines around how long you should keep your tax records. But some experts recommend holding onto the returns for even longer than the IRS says you should.
"It's easy and convenient to scan and upload to the cloud, and there is very little downside to keeping old returns, but lots of potential nightmares lurking if you need an older return and can't access it," says Matthew Jenkins, CFA, CFP, and founder of Noble Hill Planning.
Ultimately, you'll be safe following the rules of retention laid out by the IRS. But if you want to hold onto those records longer, it won't hurt to have them available if you need them.
When you're ready to get rid of financial documents or tax records, shredding is the best method.
FAQs on how long to keep tax records
What if I'm audited?
If you're audited, don't panic. The potential of an audit is one reason to keep your tax records. Use a system to stay organized, such as by year or tax form, so you can easily access your records if needed.
Can I keep digital copies of my tax records?
Yes, you can keep digital copies of your tax records. Password-protected digital records are safe and the IRS considers them to be valid receipts. Make sure they are legible and complete.
What should I do with old tax records I no longer need?
If you no longer need paper copies of old tax records or financial documents, shred them.
