How Long Should You Keep Your Tax Records?

Keeping accurate and organized tax records is an important responsibility for every taxpayer. These documents serve as proof of income, deductions, and credits reported on your annual tax return. Maintaining these records allows you to verify information if questions arise from tax authorities, such as during an audit. Properly kept records also support any claims or deductions you make.

General Rules for Record Retention

For most individuals, the general rule is to keep tax records for three years from the date you filed your original tax return or the due date of the return, whichever is later. This period aligns with the standard statute of limitations for the tax authorities to assess additional tax. For example, if you filed your 2024 tax return on April 15, 2025, you would need to keep supporting documents until April 15, 2028.

There are situations where a longer retention period applies. If you substantially understate your gross income by more than 25% on your return, the period extends to six years. The six-year period also begins from the date the return was filed.

In cases of a fraudulent return or if you fail to file a return altogether, there is no statute of limitations, meaning records should be kept indefinitely. If you file a claim for a credit or refund after filing your original return, you should keep records for three years from the date you filed the original return or two years from the date you paid the tax, whichever is later.

Specific Situations Requiring Longer Retention

Certain financial events necessitate keeping records for periods longer than the general rules. If you claim a loss from worthless securities or a bad debt deduction, you should retain related records for seven years from the date the return was due for that specific tax year.

Records related to the basis of property, such as a home or investments like stocks, should be kept until the statute of limitations expires for the year in which you dispose of the property. For example, if you sell a house, you need to retain purchase documents, improvement costs, and sale records for at least three years after filing the tax return for the year of the sale. These documents are used to calculate any depreciation deductions, amortization, or depletion, and to determine the gain or loss when the property is sold.

For those who employ others, employment tax records must be retained for at least four years after the date the tax becomes due or is paid, whichever is later. This includes payroll records and other documentation related to employee compensation and taxes withheld.

What Documents to Retain

It is advisable to keep a comprehensive set of documents to support your tax filings. The filed tax return itself, including all schedules and forms, should be retained.

Supporting income documents are also important. These include W-2 forms from employers, 1099 forms for various types of income such as interest (1099-INT), dividends (1099-DIV), or nonemployee compensation (1099-NEC), and K-1 forms from partnerships, S corporations, or trusts. Receipts for itemized deductions, like medical expenses, charitable contributions, or business expenses, are also necessary.

Bank and credit card statements that substantiate income or deductions should be kept. Records of stock transactions, including purchase and sale confirmations, are needed to determine capital gains or losses. Documents related to home purchases or sales, such as closing statements and records of improvements, are also important for calculating basis and gain upon sale.

Methods for Storing Tax Records

Organizing your tax records effectively can streamline future tax preparation and make it easier to retrieve documents if needed. Both physical and digital storage methods offer secure options for safeguarding your information. For physical documents, consider using a fire-resistant safe or a secure filing cabinet.

Arranging paper documents by tax year in clearly labeled folders can help maintain order. A secure location, away from potential hazards like water damage or fire, is recommended for physical storage. Some individuals opt for a bank safe deposit box for particularly sensitive physical records.

Digital storage provides convenience and can serve as a backup for physical records. Scanning paper documents into electronic images, such as PDF files, is a common practice. These digital files can be stored on external hard drives or secure cloud storage services, which often employ encryption for data protection.