How Many Years Should You Keep Your Tax Returns?

Maintaining tax records is essential for financial management for individuals and businesses. These records serve as a history of income, expenses, deductions, and credits, supporting tax compliance. Proper record-keeping is necessary for substantiating figures reported on tax returns and for responding to inquiries or audits from tax authorities. It helps taxpayers verify financial positions and meet obligations.

Standard Tax Return Retention

A three-year retention period is generally sufficient for tax returns and supporting documentation. This period begins from the later of the filing date or its due date. For instance, if a tax return for the 2024 tax year was filed on April 15, 2025, the three-year retention period would extend until April 15, 2028. This timeframe aligns with the general statute of limitations during which the Internal Revenue Service (IRS) can assess additional tax or initiate an audit.

This three-year rule applies to most routine tax situations where income has been accurately reported and there are no complex financial transactions. It provides a window for the IRS to review a return. Taxpayers can also amend a return to claim a credit or refund within this period. Adhering to this period ensures documentation is available if questions arise regarding a filed return.

Extended Tax Return Retention

Some situations require retaining tax records for periods longer than the standard three years. One scenario involves a substantial understatement of gross income. If more than 25% of the gross income that should have been reported on a tax return was omitted, the IRS has six years from the filing date to assess additional tax. This extended period is designed to cover significant discrepancies in reported income, such as when an individual earns $200,000 but only reports $140,000.

Another instance requiring longer retention is a claim for a loss from worthless securities or a bad debt deduction. In these cases, records should be kept for seven years. If a tax return is never filed or if a fraudulent return is submitted, there is no statute of limitations, meaning records should be kept indefinitely. This indefinite retention underscores the severity of non-compliance or fraudulent activity.

Permanent Tax Record Retention

Certain financial records should be retained indefinitely, as they relate to the basis of assets or contributions that may impact future tax calculations. Records detailing the purchase, sale, or significant improvements to real estate, such as a primary residence or rental properties, fall into this category. These documents are used for accurately calculating the cost basis of the property, which determines capital gains or losses when the asset is sold. Similarly, records for stocks, bonds, and other investments should be kept for as long as they are owned and potentially for several years after their sale.

Documentation related to retirement contributions also warrants permanent retention, particularly records of non-deductible contributions to Individual Retirement Arrangements (IRAs). These records establish the portion of future withdrawals that will be tax-free, preventing double taxation. Other records, such as those pertaining to inherited assets, are also important for determining their basis for tax purposes. Keeping these permanent records helps ensure that taxpayers can accurately calculate future taxable events and avoid overpaying taxes.

Types of Supporting Records

Beyond the tax return itself, various supporting documents should be retained for the appropriate periods to substantiate reported information. These include income statements such as W-2 forms from employers and various 1099 forms, including those for interest (1099-INT), dividends (1099-DIV), government payments (1099-G), non-employee compensation (1099-NEC), and retirement distributions (1099-R).

Receipts for deductible expenses are also important, encompassing items like medical expenses, charitable contributions, and business-related costs. Bank statements and credit card statements can corroborate income and expense figures, providing a detailed transaction history. Cancelled checks and payroll stubs further support financial transactions and income earned. Records related to significant asset transactions, such as home sales, purchases, or improvements, and stock transactions, are also important to maintain. Finally, K-1 forms, which report income, losses, and deductions from partnerships or S corporations, must be kept to accurately reflect ownership interests and their tax implications.