How Long Are You Supposed to Keep Tax Returns?

Understanding how long to keep tax returns is a practical aspect of financial management. These records serve as a comprehensive account of your financial activity, income, deductions, and credits. Maintaining them appropriately can provide a clear picture of your financial past, which is valuable for personal financial planning. Proper documentation also ensures you are prepared for potential future inquiries or audits from tax authorities.

Knowing the specific retention guidelines helps prevent unnecessary clutter while ensuring you retain important information. These guidelines are designed to align with the periods during which tax authorities can review or challenge your filed returns.

General Tax Return Retention Periods

The standard retention period for tax returns is generally three years. This period begins from the date you filed your original return or the due date of the return, whichever is later. For instance, if you filed your 2024 tax return on April 10, 2025, the three-year period would begin from April 15, 2025, the due date. If you filed an extension and submitted your return on October 15, 2025, the three-year period would start from that later date.

This three-year timeframe aligns with the general statute of limitations for the Internal Revenue Service (IRS) to assess additional tax. Under 26 U.S. Code § 6501, the IRS has three years to audit a return and assess any additional tax owed. This means that after three years, the likelihood of an ordinary audit for that tax year significantly decreases. For taxpayers who file a claim for a credit or refund after their initial return, the retention period is extended. In such cases, records should be kept for three years from the date the original return was filed, or two years from the date the tax was paid, whichever date is later.

Situations Requiring Longer Retention

There are several circumstances that necessitate keeping tax records for periods longer than the standard three years. One such situation arises if you omit more than 25% of your gross income from your tax return. In this case, the IRS has six years from the date the return was filed to assess additional tax, as outlined in 26 U.S. Code § 6501. This extended period provides the IRS more time to identify significant underreporting of income.

A longer retention period of seven years applies if you file a claim for a loss from worthless securities or a bad debt deduction. This extended timeframe allows for thorough review of these specific types of claims, which can often involve complex financial transactions.

In situations where a tax return is not filed at all, or if a fraudulent return is filed, there is no statute of limitations for assessment. Under 26 U.S. Code § 6501, the IRS can assess tax at any time in these instances. This means that records related to these unfiled or fraudulent returns should be kept indefinitely to protect against potential future liabilities.

Records related to property, such as those for a home or investments, require a different retention approach. You should keep these records until the period of limitations expires for the year in which you dispose of the property. For instance, if you sell a home, you would typically keep records related to its purchase price, improvements, and sale for at least three years after filing the return for the year of sale. These documents are essential for determining your basis in the property and calculating any gain or loss upon sale.

For employers, employment tax records must be maintained for at least four years after the later of the due date of the tax return for the period to which the records relate or the date the tax is paid. This requirement, specified in IRS regulation 26 CFR § 31.6001-1, ensures that all necessary information regarding wages, taxes withheld, and tax deposits is available for review. These records include employer identification numbers, amounts and dates of wage payments, and copies of employees’ Forms W-4.

Supporting Documentation for Tax Returns

Beyond the tax return itself, various supporting documents are equally important to retain. These include income statements like Forms W-2 from employers, and Forms 1099, which report other types of income such as interest, dividends, or freelance earnings. These forms provide direct evidence of the income amounts reported on your return.

Receipts for deductions, canceled checks, and bank statements are also crucial. For example, if you claim itemized deductions for charitable contributions, medical expenses, or business expenses, receipts and payment records substantiate these claims. Bank and brokerage statements verify financial transactions and can be used to reconcile income or deductions.

The retention period for these supporting documents generally mirrors that of the tax return they relate to. If the IRS initiates an audit or inquiry, these documents are necessary to prove the accuracy of the information reported on your tax return. Without them, substantiating your claims, deductions, or income could be challenging.

Effective Record Keeping and Disposal

Organizing your tax records effectively can simplify future tax preparation and potential inquiries. Both physical and digital storage options are viable, provided they ensure the security and accessibility of your documents. For physical records, using secure, fireproof safes or locked filing cabinets can protect against damage or theft. Labeling folders by tax year can make retrieval straightforward.

If opting for digital storage, ensure that scanned documents are clear, legible, and can be easily reproduced. Utilizing encrypted hard drives or reputable cloud storage services with strong security protocols is advisable to protect sensitive financial information. Regular backups of digital records are also important to prevent data loss.

Once the applicable retention period for your tax returns and supporting documents has passed, secure disposal is important to prevent identity theft. Simply throwing documents in the trash or recycling bin is not sufficient, as personal information could be compromised. Shredding physical documents is recommended, ideally using a cross-cut shredder that renders the information unreadable.

For digital files, secure deletion methods, such as overwriting data or using specialized software that permanently erases files, should be employed. Some professional shredding services offer secure document destruction, including both physical shredding and digital data destruction, which can provide an added layer of security.