How Many Years of Taxes Do You Need to Keep?

Maintaining accurate tax records is a fundamental responsibility for every taxpayer. These records serve as a robust defense if tax authorities have questions about a filed return, providing evidence to verify reported income, deductions, and credits. Understanding the duration for which these documents must be retained is important, as the required period can vary depending on individual circumstances and the nature of the financial activity.

General Tax Record Retention Periods

The most common guideline for retaining tax records is three years. This period begins from the date you filed your original tax return or the due date of the return, whichever is later. For instance, if you filed your tax return on April 10, 2024, for the 2023 tax year, the three-year period would typically end on April 15, 2027. This timeframe aligns with the general statute of limitations during which the Internal Revenue Service (IRS) can assess additional tax, or you can claim a credit or refund.

This three-year rule applies to most individual income tax situations. If your return is accurate and complete, with no significant understatements of income or fraudulent activity, keeping records for this duration is generally sufficient. It provides a reasonable window for both the taxpayer and the IRS to address any routine inquiries or discrepancies.

Situations Requiring Longer Retention

Underreported Income

If you omit more than 25% of your gross income from a filed return, the IRS’s statute of limitations to assess additional tax increases to six years. This extended period allows the IRS more time to identify substantial underreporting of income.

Worthless Securities or Bad Debt

Records related to a claim for a loss from worthless securities or a bad debt deduction require a seven-year retention period. This extended timeframe acknowledges the complexity of substantiating such losses, which often requires detailed financial documentation. For these specific deductions, the seven-year period applies to the records directly supporting the claim, while other items on the same return might still fall under the three-year rule.

Unfiled or Fraudulent Returns

If you have not filed a required tax return or if you filed a fraudulent return, there is no statute of limitations. The IRS can assess tax at any time, so records supporting income, deductions, and credits for unfiled or fraudulent returns should be retained permanently.

Property Basis Records

Records related to the basis of property, such as a home purchase, stock investments, or other assets, also require indefinite retention. These documents are important for calculating gain or loss when the asset is eventually sold. You will need these records until the statute of limitations expires for the tax year in which you dispose of the property and report the sale.

Employment Tax Records

Employers must retain all employment tax records for at least four years after the date the tax becomes due or is paid, whichever is later. These records are essential for verifying compliance with payroll tax obligations and can be requested by the IRS for review.

Key Documents to Retain

Retaining copies of your filed tax returns, such as Form 1040 for individuals or Form 1120 for corporations, is important. These documents provide a summary of your financial reporting and are helpful for future tax filings or inquiries.

Supporting documentation for income, deductions, and credits is also important. This includes:

• Income statements like Form W-2, Form 1099s (for interest, dividends, nonemployee compensation), and Schedule K-1 forms. These forms provide official reports of income received.
• Records substantiating deductions and credits, such as receipts, canceled checks, credit card statements, medical bills, and charitable contribution acknowledgments. These documents prove the validity of the amounts claimed on your tax return.
• Bank statements and brokerage statements, which provide an overview of financial transactions, including deposits, withdrawals, and investment activities. These statements can corroborate reported income and expenses.
• For assets like real estate or investments, records such as property deeds, stock certificates, and documentation of home improvements are important, as they establish the original cost and any adjustments to the basis.

Employers must also maintain payroll records, which include details about wages paid, tax withholdings, and employee information. While paper records are acceptable, many taxpayers find it beneficial to maintain digital copies for easier access and organization. The ability to produce these records upon request is important.

Safely Disposing of Tax Documents

Once the applicable retention period for tax documents has passed, secure disposal is essential for protecting personal information. Simply discarding paper documents in the trash or recycling can expose sensitive data to identity thieves. Physical documents should be shredded using a cross-cut shredder, which renders the information unreadable.

For digital tax records, secure deletion methods are important. This means ensuring files are permanently removed from devices and cloud storage, beyond simple deletion that allows for recovery. Overwriting data or using specialized software designed for secure file erasure can prevent unauthorized access.

The main reason for secure disposal is to prevent identity theft and financial fraud. Tax documents contain personally identifiable information, such as Social Security numbers, addresses, and financial account details, which criminals can exploit. Disposing of records appropriately minimizes this risk.

It is generally safe to dispose of records after the relevant statute of limitations has expired for that tax year and all related financial activities. However, ensure no ongoing financial matters, such as property ownership or unresolved tax issues, require continued retention of those specific documents.