How Long You Should Keep Tax Returns
How long do you keep tax returns?
It's not just about paperwork piling up on your personal desktop. Computer hard drives can get clogged and overburdened, too. Even flash drives and other neat little accessories only hold so much and can be easy to misplace.
It can be oh-so-tempting to throw out clutter and paper that you don't really need anymore, but there's no way around it—tax returns and related documents are important to keep. You'll need them in the event that the IRS wants to review information relating to that particular tax year, and old tax returns can come in handy for several other purposes as well, such as verifying income when you're applying for a loan or an apartment.
Just how long you're supposed to keep cramming every available space with old tax documents and returns can depend on what you're saving and why.
How Long You Should Keep IRS Returns
Generally speaking, tax returns and related documents should be retained for at least as long as the IRS or a state taxing authority is permitted to audit that return. This period of time is referred to as the statute of limitations.
It's generally three years from the date the tax return was actually filed for federal returns, or three years from the April 15 deadline if the return was filed before the deadline. But special time limits pertain to certain scenarios, such as if you underreported your income, failed to file a return at all, or if you've claimed a tax deduction that you're not actually entitled to.
The IRS provides a full list of these circumstances on its website.
The IRS indicates that they can go back longer than three years to audit a return if they find a "substantial error." It says that it "usually" doesn't go back longer than six years, however.
Keeping State Tax Returns
Each state has its own statutes of limitations on audits. Many states follow the federal time period of three years, but others have longer time periods.
For example, Montana has a three- to six-year window for audits. The state more or less mirrors the IRS rules. It's four years in New Jersey.
Check with your state's Department of the Treasury to be sure.
What You Should Keep
Along with a copy of your tax return, you should keep any documents that are related to the income, deductions, or credits that you reported and claimed. This would include items like copies of your Forms W-2, Forms 1099, acknowledgment letters for charitable donations, and receipts for tax-deductible expenses.
Self-employed persons should also keep copies of any accounting records, such as bank statements, profit, and loss statements, or a backup of their data from their accounting software.
You might also want to keep any documents about real estate, business assets, stocks, bonds, or other assets you own for as long as you own them, then for another three years or longer after the asset is sold, depending on your state. You'll need these records for calculating cost basis and gain or loss for any capital gains tax.
Keep copies of all documentation relating to your health care coverage and that of your dependents as well. There's no longer a tax penalty for not maintaining coverage, but all other requirements of the Affordable Care Act are still alive and well.
When It's Time to Discard
Make these final checks before you begin tossing out old tax and financial documents:
- Check your Social Security statement and compare your earnings to the information on your W-2s and tax returns. You can request one from for the Social Security Administration if you haven't received a Social Security statement lately. Every so often, the income from your W-2 or self-employment income from your tax return won't show up on your Social Security statement. The SSA has procedures in place to help you correct any errors you might find.
- Check the date you filed your tax return. Make sure that it's been at least three years after the tax return was filed before you discard it.
- Call the IRS and ask for a "Record of Account" for a particular tax year. Your accountant can do this for you and help you understand this IRS printout. Sometimes adjustments are made to tax returns after they're filed and you might not know about it or you might have forgotten about it. This is an opportunity to make sure any IRS problems for a particular tax year have been settled before you throw away your important documentation.
- Scan your tax documents and save them to a CD-ROM or flash drive, even if you toss the paper copies. Scanned copies of your documents take up far less space than paper files.
Always shred your old tax and financial documents. Don't just wad them up and toss them in the nearest trash can! You don't want anyone to be able to gain access to your identifying information.
How You Should Keep Everything
Scanning and saving to your hard drive is the ultimate space-saver, but tax returns and related documents can be maintained in a number of other ways as well:
- Paper files organized by the year with tax returns and related documents all in the same folder.
- Use an accordion file or a box for each year.
- Keep separate files for your long-term assets.
- Make CD-ROMs or flash drives of your most valuable documents and put these in a safe deposit box.
American Bar Association. "IRS Can Audit for Three Years, Six Years, or Forever: Here's How to Tell." Accessed Oct. 8, 2019.
Internal Revenue Service. "How Long Should I Keep Records?" Accessed Oct. 8, 2019.
Montana Department of Revenue. "Individual Tax Records," Accessed Oct. 8, 2019.
State of New Jersey Department of the Treasury. "New Jersey State Tax Audit," Page 1. Accessed Oct. 8, 2019.
Internal Revenue Service. "Topic No 305 Recordkeeping." Accessed Oct. 8, 2019.
Internal Revenue Service. "Transcript Types and Ways to Order Them." Accessed Oct. 8, 2019.