How Many Years Do I Need to Keep My Tax Returns?

Maintaining accurate tax records is important for verifying reported income, deductions, and credits if tax authorities raise questions, and provides protection in the event of an audit.

General Rule for Retention

For most taxpayers, the Internal Revenue Service (IRS) recommends keeping tax returns and supporting documentation for at least three years. This period aligns with the typical statute of limitations during which the IRS can audit a return and assess additional tax. The clock usually starts from the later of the tax return’s due date or the date it was actually filed. For instance, if a tax return was due on April 15 but filed on March 15, the three-year period would still begin on April 15. If a taxpayer files their return after the original due date, the three-year window begins on the actual filing date.

Situations Requiring Extended Retention

While the three-year rule applies broadly, several specific situations necessitate holding onto tax records for longer periods.

If there is a substantial understatement of income, meaning more than 25% of the gross income reported on the return was omitted, the IRS has an extended six-year period to assess additional tax. This six-year period begins from the date the return was filed. Gross income includes all income before deductions and exemptions, such as wages, business income, rental income, interest, and dividends.

For taxpayers claiming a deduction for a loss from worthless securities or a bad debt, records supporting this claim should be kept for seven years. This extended period specifically applies to the documentation for that particular deduction, while other parts of the return might still fall under the three-year rule.

If no tax return was filed for a given year, the IRS has an indefinite period to assess tax, meaning records for that year should be kept permanently. Similarly, if a fraudulent return was filed, there is no statute of limitations, requiring indefinite retention of all related documents.

Employers must retain employment tax records for at least four years. This period is calculated from the date the tax becomes due or is paid, whichever is later. These records include details such as employer identification numbers, amounts and dates of wage payments, and employee social security numbers.

Records related to the basis of property, such as a home or investments, must be kept for a significantly longer time. These records, including purchase documents, closing statements, and receipts for improvements, are essential for calculating depreciation, amortization, or the gain or loss when the property is sold or disposed of. These documents should be retained until the statute of limitations expires for the tax year in which the property was sold or otherwise disposed of. For example, if a home was purchased years ago and improvements were made, all related receipts and documents should be kept until at least three years after the tax return for the home’s sale has been filed.

Individuals who make nondeductible contributions to a traditional Individual Retirement Account (IRA) should keep records of these contributions indefinitely. This is because these after-tax contributions establish a cost basis in the IRA. Maintaining these records, typically by filing IRS Form 8606, prevents these amounts from being taxed again when distributions are eventually taken in retirement.

What Records to Keep

Beyond the tax return form itself, taxpayers need to retain various supporting documents to substantiate the information reported.

Key documents to keep include W-2 wage and tax statements and various Form 1099s, such as 1099-INT for interest, 1099-DIV for dividends, and 1099-MISC or 1099-NEC for miscellaneous or nonemployee compensation. Receipts for deductible expenses, such as charitable contributions, medical expenses, or business expenditures, are also important. Canceled checks, bank statements, and credit card statements provide proof of payment for these expenses.

For investments, brokerage statements and records of stock or bond purchases and sales are necessary to determine cost basis and calculate any gains or losses. Records of property purchases, sales, and any capital improvements are crucial for determining the adjusted basis of assets like real estate. Keeping these detailed records ensures that all reported figures can be verified if requested by tax authorities.

Record Keeping Options

Effective record keeping involves choosing a storage method that ensures accessibility, organization, and security for the required retention periods. Both physical and digital options are available, each with distinct advantages.

For physical storage, an organized filing system using folders labeled by tax year and document type can be highly effective. Storing these documents in a secure location, such as a fireproof safe or a locked cabinet, helps protect them from damage or theft. Clear labeling allows for easy retrieval if records are needed for an audit or other financial purposes.

Digital storage offers convenience and can save physical space. Taxpayers can scan paper documents and save them to a computer, an external hard drive, or a secure cloud storage service. Ensuring digital files are accessible and organized is as important as with physical records.