How Long Should You Keep Tax Returns?
It can be tempting to throw out paperwork that you think you just don't need anymore, but your tax returns and related documents are important to keep. You'll need them if the IRS wants to review your information, 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. You'll want to keep them for a few years at least.
How Long Should You Keep IRS Returns?
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 a 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. Special time limits pertain to certain scenarios, however, 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 indicates that it 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
Keep any documents that are related to the income, deductions, or credits that you reported and claimed on your return, along with a copy of your tax return itself. These would include copies of your Forms W-2, 1099s, acknowledgment letters for charitable donations, and receipts for tax-deductible expenses.
Self-employed persons should also keep copies of their accounting records, such as bank statements, profit and loss statements, or a backup of their data from 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 even longer after the asset is sold. 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. There's no longer a tax penalty for not maintaining coverage, but all other requirements of the Affordable Care Act remain in effect.
When It's Time to Discard
Make a few final checks before you start tossing out old tax and financial documents.
Your Social Security Statement
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 or if you've misplaced it.
Every so often, the income from your W-2 or your self-employment taxes won't show up on your Social Security statement. The SSA has procedures in place to help you correct any errors you might find.
The Date You Filed
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.
Ask for a Record of Account
Call the IRS and ask for a "Record of Account" for a particular tax year. 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.
Your accountant or tax professional can ask for your Record of Account and help you understand this IRS printout.
Scan Your Documents
Scan your tax documents and save them to a CD-ROM or flash drive, even if you eventually 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. 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 them in a safe deposit box.
NOTE: Tax laws change periodically. You should always consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.