How Many Years Should You Keep Tax Records?

Maintaining accurate tax records is a foundational aspect of financial responsibility. Understanding the appropriate retention periods for these documents helps prevent complications. Proper record-keeping streamlines tax preparation, aids during an audit, and ensures compliance with tax laws.

Standard Record Retention Guidelines

The general guideline for keeping 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 2024 tax return on April 15, 2025, the three-year period would typically expire on April 15, 2028. This timeframe aligns with the Internal Revenue Service’s (IRS) general statute of limitations for assessing additional tax, as outlined in Internal Revenue Code Section 6501.

It is important to retain all supporting documentation for your tax return, even if you did not owe any tax for that year. The IRS can still examine your return within this three-year window. Filing your return before the due date does not shorten this period; the statute of limitations generally begins on the actual due date of the return.

Extended Retention Requirements for Specific Situations

Certain situations require taxpayers to retain their records for periods longer than the standard three years. These extended periods address specific tax scenarios where the potential for reassessment or a claim for credit or refund remains open for a longer duration.

If you underreport your gross income by more than 25% of the gross income reported on your return, the IRS has six years from the date you filed the return to assess additional tax. This rule also applies if you omit more than $5,000 in gross income from a foreign financial asset subject to reporting requirements, as specified under Section 6501.

For claims related to a loss from worthless securities or a bad debt deduction, you should keep records for seven years from the date the return was due for that year. These deductions are governed by Internal Revenue Code Section 166 for bad debts and Section 165 for worthless securities. A security is generally considered worthless when it loses all value, often due to an identifiable event such as bankruptcy.

There is no statute of limitations if you file a fraudulent return or if you fail to file a return at all. In these circumstances, the IRS can assess tax at any time, making it necessary to keep all relevant records indefinitely.

For employment tax records, employers should keep documents for at least four years from the date the tax becomes due or is paid, whichever is later. This includes payroll registers, tax returns like Form 941, and withholding documentation such as Forms W-2 and W-4.

Records related to the basis of property, such as purchase documents, records of improvements, and sale documents, should be retained until the period of limitations expires for the year in which you dispose of the property. This means keeping them for at least three years after you file the return reporting the sale or other disposition of the property.

Types of Records to Retain

Keeping a variety of documents that substantiate income, deductions, and credits is important. This includes:

Income statements such as Forms W-2, showing wages, and Forms 1099, reporting various types of income like interest, dividends, or independent contractor payments.
Receipts for deductible expenses, such as medical costs, charitable contributions, or business expenditures.
Bank and credit card statements, which can serve as supporting documentation for transactions.
Records of investment activity, including purchase and sale confirmations, and K-1 forms from partnerships or S corporations.
Copies of previously filed tax returns, along with all schedules and attachments, as a permanent record of your tax history.

Organizing and Storing Your Records

Establishing a systematic approach to organizing and storing tax records can simplify retrieval and ensure their security. Both physical and digital storage methods offer advantages.

Physical storage, such as filing cabinets or secure boxes, is suitable for original documents that may be required in their tangible form.

Digital storage offers benefits like accessibility, searchability, and ease of backup. Scanning paper documents to create digital copies, ensuring they are legible and easily reproducible, can reduce physical clutter. Implement a consistent naming convention for digital files and consider cloud storage with strong encryption for off-site backups.