How Long Do You Need to Keep Your Tax Returns?

Tax record retention is an important aspect of personal financial management, providing a safeguard against potential issues with tax authorities. Understanding how long to keep these documents helps ensure compliance with regulations and offers peace of mind. Proper record-keeping supports the information reported on tax returns, which can be beneficial in various situations, including audits or when applying for loans. It also serves as a historical reference for financial planning.

Standard Retention Periods

The most common guideline for retaining tax records is three years from the date you filed your original return or the due date of the return, whichever is later. This three-year period aligns with the Internal Revenue Service’s (IRS) general statute of limitations for assessing additional tax. If you filed your return before the April 15th due date, it is treated as if it was filed on the due date for this purpose. The IRS has three years from that point to initiate an audit and assess any additional taxes you might owe.

A six-year rule applies if you substantially understate your gross income by more than 25% on your tax return. In this situation, the IRS has up to six years to assess additional tax. Keeping records for at least six years offers protection.

Situations Requiring Longer Retention

Some situations necessitate keeping tax records for periods extending beyond the standard guidelines. If a fraudulent return is filed, or if no return is filed at all, there is no statute of limitations, meaning records should be kept indefinitely.

For claims seeking a credit or refund after the initial filing, the retention period is three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later. If you claim a deduction for a bad debt or a loss from worthless securities, retain supporting records for seven years.

Records related to property, such as your home or investments, require retention until the period of limitations expires for the year you dispose of the property. This is for calculating depreciation, amortization, depletion, and capital gains or losses when the property is sold. If property was acquired in a non-taxable exchange, records for both the old and new property must be kept until the statute of limitations expires for the year the new property is disposed of.

Which Documents to Retain

Beyond the filed tax return itself, a variety of documents constitute tax records. Keep a copy of your federal and state tax returns, along with any amendments. These serve as the primary record of your tax obligations and reported income.

Supporting documents for income include W-2 forms from employers, 1099 forms (such as 1099-NEC for non-employee compensation, 1099-INT for interest, 1099-DIV for dividends, and 1099-B for stock sales), and K-1 forms from partnerships, S corporations, or trusts. Documentation for other income sources, like rental income or alimony, should also be retained.

For deductions and credits, keep receipts, invoices, canceled checks, and other proofs of payment. This includes records for itemized deductions like medical expenses, charitable contributions, and mortgage interest (Form 1098). Also retain records of business expenses, mileage logs, and eligible expenses for withdrawals from health savings accounts or 529 college savings plans.

Securely Keeping Your Records

Maintaining an organized and secure system for tax records aids easy retrieval and protection. Whether opting for physical or digital storage, consistent organization by tax year simplifies locating documents when needed. This systematic approach ensures all necessary information is readily accessible for an audit or future reference.

For paper documents, consider storing them in a secure, climate-controlled environment, such as a locked filing cabinet or a fireproof safe. This protects against physical damage from fire, water, or theft. For digital records, which the IRS accepts, ensure files are encrypted and backed up. Cloud storage services or external hard drives provide secure backup solutions, but always use reputable providers and enable multi-factor authentication for security.

Disposing of Old Tax Records

Once the applicable retention period for your tax records has passed, proper disposal protects personal information. Simply discarding documents in the trash or recycling bin can expose sensitive data to identity theft. Documents containing Social Security numbers, bank account details, and income history should be handled with care.

Shredding paper documents is a recommended method for secure disposal, ensuring information cannot be reconstructed. Many local services offer secure shredding options if a personal shredder is not available. For digital files, securely deleting them from all storage locations, including backups, prevents unauthorized access.