How Long Should Tax Returns Be Kept?

Keeping accurate tax records is important for financial responsibility. These records serve as documentation for verifying income, deductions, and credits, which is important if your return is selected for review by the Internal Revenue Service (IRS). They also support future financial planning and can be necessary for purposes such as loan applications or establishing Social Security benefits. Understanding the appropriate retention periods for these documents helps ensure compliance and provides peace of mind.

General Retention Period

The standard retention period for tax returns and their supporting documents is generally three years. This period aligns with the IRS’s statute of limitations, allowing the agency three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later, to assess additional tax. For instance, if you filed your 2024 tax return on April 15, 2025, the IRS has until April 15, 2028, to initiate an audit. This three-year window also applies to taxpayers who wish to file an amended return to claim a refund or credit for taxes already paid. This general rule applies to most individual tax situations, and if a return is filed before its due date, it is still considered filed on the due date for the purpose of this limitation period.

Specific Circumstances for Longer Retention

Certain financial situations necessitate keeping tax records for periods exceeding the general three-year guideline. If you substantially underreported your gross income by more than 25% on your tax return, the IRS has an extended six-year period to assess additional tax. This allows the IRS more time to identify discrepancies. A seven-year retention period applies if you file a claim for a loss from worthless securities or a bad debt deduction. These claims require extensive documentation. For cases where no return was filed or a fraudulent return was submitted, there is no statute of limitations, meaning records should be kept indefinitely. Records related to property, such as a home or investments like stocks, should be retained until you dispose of the property. This is crucial for accurately determining the cost basis, which is needed to calculate any taxable gain or loss when the asset is sold. Similarly, documentation for non-deductible IRA contributions should be kept permanently to prevent double taxation on distributions in retirement.

Supporting Documents to Retain

Beyond the tax return itself, a variety of supporting documents are necessary to substantiate the information reported. These include income statements such as Forms W-2 from employers, Forms 1099 for various types of income like interest, dividends, or freelance earnings, and Schedules K-1 from partnerships or S corporations. Financial transaction records, such as bank statements, canceled checks, and credit card statements, are important for verifying income and expenses. Receipts for deductions like charitable contributions, medical expenses, or business expenses must also be kept to prove the validity and amount of the deduction claimed. For significant assets, records of purchase and sale, along with documentation for any improvements made, are important for basis calculations.

Methods for Storing Tax Records

Proper storage of tax records, whether physical or digital, is important for accessibility and security. For physical documents, a secure, dry location like a locked file cabinet helps protect against damage from water, fire, or theft. Organizing these documents by tax year can facilitate easy retrieval. Digital storage offers convenience and can provide an additional layer of protection through backups, involving scanning physical documents and saving them in widely accessible formats like PDF. Utilizing secure cloud storage services or encrypted external hard drives for digital files is advisable, with regular backups to prevent data loss.