How Many Years of Tax Returns Should You Keep?

Keeping accurate records of your tax returns and supporting financial documents is important. These records serve purposes like verifying income for loan applications or proving financial history, and allow you to respond to inquiries from tax authorities. Understanding how long to retain these records helps manage finances and ensures compliance. This article provides guidelines on how long to keep these financial papers.

General Rule for Keeping Tax Returns

The general guideline for retaining tax returns and their supporting documents is three years. This period begins from the date you filed your original return or the due date of the return, whichever is later. For instance, if you filed your 2024 tax return on April 10, 2025, the three-year period would begin from April 15, 2025, the standard due date. This timeframe aligns with the Internal Revenue Service’s (IRS) statute of limitations for assessing additional tax, as outlined in Internal Revenue Code Section 6501.

This three-year period is sufficient for taxpayers who file accurate returns and report all income. Within this window, the IRS has the authority to audit a return and propose changes. The period also applies if you need to amend your return to claim a credit or request a refund.

Situations Requiring Longer Retention

Some situations require keeping tax records for periods longer than three years, extending up to seven years or indefinitely. For instance, you should retain records for six years if you substantially understate your gross income, meaning you omit more than 25% of the gross income reported on your tax return, as detailed in Internal Revenue Code Section 6501. This extended period provides the IRS more time to identify significant unreported income.

Records related to worthless securities or bad debt deductions should be kept for seven years. This allows sufficient time to account for the specific rules governing these types of losses, as outlined in Internal Revenue Code Section 6511.

Certain circumstances require indefinite retention of tax records. If you do not file a tax return, or if you file a fraudulent return, the IRS has no time limit on when they can assess tax or pursue legal action. Records related to property you own, such as purchase price, improvements, and sale documents, should be kept indefinitely to establish your cost basis. These property records should be retained for three years after filing the tax return for the year the property was sold.

Household employers who pay wages to domestic workers must keep employment tax records for at least four years after the tax becomes due or is paid, whichever is later. This includes records supporting Schedule H filed with Form 1040, and Form 940. Taxpayers with an interest in foreign financial accounts may also need to retain records for longer periods. For example, records supporting FinCEN Form 114 (Report of Foreign Bank and Financial Accounts, or FBAR) should be kept for five years from its due date.

What Supporting Records to Keep

Beyond the tax return itself, various supporting documents are necessary to substantiate reported information. These include all income statements, such as Form W-2 for wages and Form 1099 for interest, dividends, or contractor income. Any Schedule K-1 forms received from partnerships or S corporations should also be retained.

Records of deductible expenses are important, including receipts for charitable contributions, medical expenses, or business-related costs. Canceled checks or bank statements that verify payments for these expenses provide additional proof. Brokerage statements documenting investment transactions, including purchases and sales, are essential for calculating capital gains or losses.

Methods for Storing Tax Records

Choosing an effective method for storing your tax records helps maintain organization and security. Physical documents can be kept in a secure, dry location, such as a sturdy file cabinet or a fireproof safe. Labeling folders by tax year can simplify retrieval.

Digital storage offers another convenient option, allowing you to scan physical documents and save them electronically. Cloud storage services, external hard drives, or secure online portals can be used for digital copies. Regardless of the method, protecting sensitive information is important; digital files should be password-protected and encrypted, and regular backups prevent data loss.

Disposing of Old Tax Records

Once the appropriate retention period for your tax records has passed, proper disposal is important to protect personal information. Simply discarding documents in the trash can expose sensitive financial details to identity theft. Physical documents should be shredded using a cross-cut shredder, which renders the information unreadable. This prevents bank account numbers, Social Security numbers, and other private data from being reconstructed.

For digital files, simply deleting them from your computer’s recycle bin is insufficient, as data can be recovered. Instead, use secure erase software that overwrites the data multiple times, making recovery virtually impossible. Alternatively, consider physically destroying old hard drives or USB drives that contained sensitive tax information. These secure disposal methods safeguard your privacy after the retention period concludes.