How Long Should I Retain Tax Records?

Tax records are the collection of documents that support the income, deductions, and credits reported on your tax return. These records are important for verifying your tax filings, which can be particularly helpful if your return is selected for examination or if you receive a notice from the tax authority. This article provides guidance on how long to retain various types of tax records.

Standard Retention Periods

The length of time you should keep tax documents aligns with the statute of limitations, which is the period during which the tax authority can assess additional tax or you can claim a refund. For most taxpayers, the Internal Revenue Service (IRS) recommends keeping tax returns and supporting documentation for at least three years from the date you filed your original return or the due date, whichever is later.

If you file an amended tax return to claim a credit or refund, you have three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, to file that claim. This period provides a safeguard in case the IRS has questions.

For instance, if you filed your 2024 tax return on April 15, 2025, the three-year period would end on April 15, 2028. Many states also follow a similar three-year statute of limitations for state income tax returns, though some may have different requirements.

Extended Retention Requirements

While the three-year rule covers many situations, some circumstances require keeping records for longer periods. If you omit more than 25% of your gross income from your tax return, the statute of limitations extends to six years after the return was filed.

Records related to property, such as a home, investments, or other assets, should be kept until the statute of limitations expires for the tax year in which you dispose of the property. This extended period is necessary to accurately calculate any depreciation, amortization, or depletion deductions, as well as the gain or loss when the property is sold or otherwise disposed of. For example, if you sell a home, you need records of its purchase price and any improvements to determine capital gains tax.

If you claim a deduction for a loss from worthless securities or a bad debt, you should keep related records for seven years. A worthless security is one that has lost all market value, while a bad debt refers to money owed that cannot be collected.

There is no statute of limitations if you did not file a tax return or if a fraudulent return was filed. In such situations, it is recommended to keep tax-related records indefinitely. For employment tax records, such as those for household employers, you should keep them for at least four years after the tax becomes due or is paid, whichever is later.

Key Documents to Keep

It is important to keep a copy of your filed tax return itself, as this serves as a record of what was submitted. This copy can also be helpful for preparing future tax returns or if you need to file an amended return.

Documents related to income are essential, including Form W-2s from employers, and various Form 1099s reporting income from sources like self-employment, interest, dividends, or retirement distributions. Bank statements and investment statements also provide proof of income and transactions. For deductible expenses, retain receipts, invoices, canceled checks, and credit card statements that show the amount paid, the payee, the date, and a description of the item or service.

Specific records for deductions should also be kept, such as mileage logs for business travel or detailed records for charitable contributions. If you own property, keep closing documents for real estate purchases or sales, receipts for home improvements, and records of depreciation. For investments, maintain brokerage statements and records of acquisition costs to determine your basis and calculate any gain or loss upon sale.

Effective Record Management

Organizing and storing tax records efficiently can simplify tax preparation and potential inquiries. You can organize records by year and then categorize them by type, such as income, expenses, or assets. Using folders and labels can help maintain a structured system, making documents easy to locate when needed.

Both physical and digital storage methods are acceptable, provided they offer accurate, legible, and accessible records. For physical documents, consider secure storage options like a fireproof safe or a locked cabinet to protect against damage or theft. For digital records, secure cloud storage, external hard drives, or encrypted files are viable options.

Regardless of the method, creating backups is important to prevent data loss. Digital records should be regularly backed up and verified, and stored in a format that remains accessible over time, such as PDF. When records have exceeded their required retention period, proper disposal is necessary to protect sensitive personal information. Shredding paper documents and using secure deletion methods for digital files are recommended practices.