How Long Should You Save Your Tax Returns?

Taxpayers should understand how long to keep tax returns and related documents. Knowing the correct retention periods helps individuals avoid potential issues with tax authorities and supports financial planning. Proper record-keeping ensures necessary information is available if questions arise about past filings.

Standard Tax Return Retention

For most taxpayers, the Internal Revenue Service (IRS) recommends keeping federal income tax returns for at least three years. This three-year period aligns with the statute of limitations for the IRS to assess additional tax. The clock for this period begins on the later of the date the tax return was filed or the tax return’s due date.

The three-year rule also applies to individuals who need to amend a return to claim a credit or refund. Taxpayers have three years from the date they filed their original return, or two years from the date they paid the tax, whichever is later, to file an amended return for a refund. Keeping records for this duration provides a safeguard for potential IRS inquiries and taxpayer-initiated adjustments.

Situations Requiring Longer Retention

Certain circumstances necessitate keeping tax returns and supporting documents for periods longer than the standard three years. If a taxpayer substantially underreports gross income, omitting more than 25% of the gross income shown on their return, the IRS has six years to assess additional tax. This extended period ensures the IRS has time to address significant discrepancies.

A seven-year retention period is advised if a taxpayer files a claim for a loss from worthless securities or a bad debt deduction. If a tax return was never filed, or a fraudulent return was submitted, there is no statute of limitations. Although the IRS may, in practice, limit enforcement to the last six years for unfiled returns, the legal exposure remains open-ended.

Keeping Supporting Documents

Keep all documents that support the information reported on a tax return. These include income statements like W-2 and 1099 forms, and records for deductions and credits such as receipts, canceled checks, and bank statements. Supporting records should be retained for the same period as the related tax return.

Records for the basis of property, such as purchase and sale documents for homes, stocks, or other assets, need careful retention. These records should be kept until the statute of limitations expires for the year the property is disposed of. This extended retention helps accurately calculate any gain or loss when the property is sold. For example, documents detailing home improvements that add to the property’s basis should be kept for many years, even after the home is sold, to properly determine capital gains.

Effective Record Keeping

Organizing and storing tax returns and supporting documents effectively is key. Taxpayers can choose physical storage methods, such as fireproof and waterproof filing cabinets or secure boxes. Labeling folders by tax year helps easy retrieval.

Digital storage offers another secure option, allowing taxpayers to scan physical documents and save them as PDFs. Cloud storage services, external hard drives, or encrypted drives can provide secure digital repositories. Regularly backing up digital records and ensuring they are accessible but secure is important. When documents are no longer needed, securely disposing of them, such as by shredding, protects sensitive personal information.