How Long Should You Keep Your Tax Returns?

Understanding how long to keep tax returns and supporting documents is an important aspect of financial management. These records are essential for future reference, providing proof of income, and perhaps most significantly, in the event of a tax authority audit.

Standard Retention Periods

For most taxpayers, the standard retention period for tax returns is three years. This timeframe begins either from the date you filed your original return or the due date of the return, whichever occurs later. For example, if your tax return was due on April 15 but you filed it early, the three-year period for an audit still begins on April 15. This three-year period is generally aligned with the Internal Revenue Service’s (IRS) statute of limitations for auditing a tax return and assessing additional tax.

Once this period expires, the IRS typically cannot initiate an audit for that specific tax year. However, this baseline period assumes that the tax return filed was accurate and complete without significant errors. It is prudent for individuals to retain copies of their filed federal and state income tax returns, along with proof of any tax payments, even beyond this minimum period.

Extended Retention Periods

While the three-year rule is common, certain circumstances require retaining tax records for a longer duration. One such situation arises if you omit more than 25% of your gross income from your tax return, extending the audit period to six years.

Another specific scenario requiring extended retention is claiming a loss from worthless securities or a bad debt deduction, which necessitates keeping records for seven years. Furthermore, if a fraudulent return was filed or if no return was filed at all, there is no statute of limitations. For those with employment tax obligations, such as household employers, records related to employment taxes must be maintained for at least four years after the tax’s due date or payment date, whichever is later.

Documents to Retain

Beyond the tax return itself, a variety of supporting documents substantiate the information reported on your tax return and are crucial in case of an audit or for future tax calculations. Key income records include Forms W-2 from employers, Forms 1099 (such as 1099-INT for interest, 1099-DIV for dividends, 1099-NEC for nonemployee compensation, and 1099-B for proceeds from brokerage transactions), and Schedule K-1s from partnerships or S corporations. If you are self-employed, maintaining records of all income and expenses, including bank deposit slips and invoices, is particularly important.

For deductions and credits, you should keep receipts, canceled checks, or account statements that prove the amount and purpose of the expense. This includes documentation for medical expenses, charitable contributions, and business expenses. Records related to property, such as purchase and sales invoices, closing statements for real estate, and documentation of improvements, are also important. These records help establish the asset’s basis, which is used to calculate depreciation, amortization, and any gain or loss when the property is sold. Generally, records related to property should be kept until the period of limitations expires for the year in which you dispose of the property.