Disclaimer: This post is for educational purposes only. Please seek professional accounting advice on any issue related to your taxes.
When it comes to your taxes, good record-keeping is a must. If you’re ever faced with questions from the IRS or need to claim a credit, having your tax returns and supporting documents will be most helpful.
At the same time, none of us want to be buried in piles of paperwork forever. Just how long you need to keep your tax records will depend on a few factors.
We look at how long one should keep tax records, as recommended by the IRS:
In most cases, you’re going to want to keep your tax returns, along with all supporting documents – including, W-2s, 1099s, receipts, invoices, proofs of payment, mileage logs, etc. – for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
Keeping Tax Records For At Least Three Years Is Important Because…
1. Under the IRS statute of limitations, the IRS has three years to decide to audit your tax return. Having the necessary supporting documents handy can help you prove the deductions or credits you took.
2. You have this three-year period (or two-year period from the date you paid the tax), to claim a credit or a refund from the IRS.
There Are Exceptions To The Three-Year Rule
Under certain circumstances (described below), the window of time that the IRS can audit your tax return increases.
1. Keep your tax returns and supporting documents for 6 years if you underreported your income by more than 25 percent, as the IRS has up to six years to audit your return if you did not report income you should have reported.
2. Keep your tax returns and supporting documents for 7 years if you file a claim for a loss from worthless securities or bad debt deduction, as the IRS has up to seven years to ask you questions.
3. Keep your tax returns and supporting documents forever if you do not file a return OR if you file a fraudulent return (but don’t ever be a shady tax cheater), as the IRS has an indefinite amount of time to investigate these situations.
For instance, if you took a year off from work to travel or care for a loved one, and you did not earn enough to be required to file taxes, having documentation of the reason why you didn’t file will be helpful in proving this to the IRS if you get audited.
One reason you might want to keep tax records for longer than seven years would be that your insurance company or creditors may require you to keep them longer than the IRS requires.
Note: If you’ve lost a tax return in the past seven years, you can obtain a copy by filing Form 4506, Request for Copy or Transcript of Tax Form from the IRS. Take note that copies of tax returns are generally only available for seven years and you will have to pay a fee for the request.
How To Keep Your Tax Records
Keeping electronic copies of all tax returns and supporting documents is an excellent practice. You can scan and store records to an external hard drive or flash drive for safe-keeping.
For more tips on how to keep important documents secure, see our post: Disaster Prep 101: Save Your Personal Documents Now
Also, very important, make sure you shred the documents you won’t keep, as identity thieves love tax-related documents.