As the IRS puts it, the duration of your tax record keeping depends on the “action, expense, or event” impacting those records.
Those actions, and those timelines, are important, as they impact the statute of limitations on any amendments to your tax return, or the federal government’s ability to demand additional tax payments from you.
To comply with IRS documentation mandates, keep the following tax records for the following time periods:
|Document||Duration of Record Keeping|
|Federal tax returns||At least three years|
|Reason: Uncle Sam only has three years to assess additional tax payments. On the flip side, taxpayers only have three years to make a claim they were entitled to, but did not receive. One exception: You need to keep page 1 of Form 1040, 1040A, 1040NR or 1040-T if you ever made nondeductible contributions to a traditional IRA and filed Form 8606, until all distributions are made.|
|Investment forms||At least seven years|
|Reason: The IRS wants taxpayers to hold on to individual retirement account (IRA) documents, home sales paperwork and other key investments for seven years. The agency may need to go back that far to ascertain accurate payment on taxes owed on investment accounts.|
|Bank statements||Two years|
|Reason: In general, bank statements and employment paycheck stubs need only be kept for two years.|
If you have under-reported any federal taxes, keep your tax documents from the past six years, starting with the year the taxes were under-reported. If you have failed to file a form, or filed a fraudulent form, don’t toss tax records away. The IRS has a legal right to review them.
The following information contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.
Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making calculations if you file an amended return.
1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you: Keep records for three years.
2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return: Keep records for six years.
3. You file a fraudulent return: Keep records indefinitely.
4. You do not file a return: Keep records indefinitely.
5. You file a claim for credit or refund after you file your return: Keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.
7. Keep all employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.
The following questions should be applied to each record as you decide whether to keep a document or throw it away:
Are the records connected to assets?
Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to determine any depreciation, amortization or depletion deduction, and to find the gain or loss when you sell or otherwise dispose of the property.
Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.
Did you make nondeductible contributions to an IRA?
Then, as discussed above, you need to keep the following papers to verify the nontaxable part of distributions from your traditional and Roth IRAs . Here, from the IRS website, is a list of the forms and records you need to keep until all distributions are made:
Page 1 of Forms 1040 (or Forms 1040A, 1040NR, or 1040-T) filed for each year you made a nondeductible contribution to a traditional IRA.
Forms 8606 and any supporting statements, attachments, and worksheets for all applicable years.
Forms 5498, IRA Contribution Information, or similar statements you received each year showing contributions you made to a traditional IRA or Roth IRA.
Forms 5498 or similar statements you received showing the value of your traditional IRAs
What should I do with my records for nontax purposes?
When your records are no longer needed for tax purposes, do not discard them until you are certain you won’t need them for other purposes. For example, your insurance company or creditors may require you to keep records longer than the IRS does. When in doubt, play it safe and keep the records.
The typical answer is around 7 years. It is important to note that if the IRS believes fraud is involved, they can go back as far as they need/want. Check with your CPA or tax professional for guidance on this important question regarding record retention.
The IRS suggests that you keep your old returns for the last three years. And if the IRS finds a substantial error in your returns, they could go back 6 years or longer.
However, you might want to keep your tax returns for even longer than 6 years. Here’s why. Your tax records summarize your financial life. They contain important cost basis data that may be difficult to find several years from now.
This is a less of a problem today than it was several years ago because custodians are required to report and transfer cost data with the assets. But why rely on the custodian when you have the information in your returns?
Also, your tax return will validate your income and whether or not you made retirement plan contributions. This might be very useful to you in the future.
Best practices suggest it’s best to hold on to your tax returns and supporting documents for as long as possible. In this day and age of electronic filing and record keeping, this should be an easy thing to do.
The earlier answer provided a good synopsis of the rules.
In simpler terms, if you rent, have rented, or use any portion of your home as a home office, you need to keep tax records indefinitely so you have a record of deprecation claimed.
Hi! Thanks for writing! I just can't help, but add a comment here...the other advisors' answers are spot on and exactly right. My answer - forever is not a reasonable answer for most readers, but rather is reflective of my personality. If you share some of my characteristics, I want to reassure you that if you do decide to keep your returns far longer than the IRS recommends, there is at least one other person who is right there with you. I have 32 years of tax returns (and supporting documentation) stacked in the attic from 1983, the year we got married. They are sitting up there next to the Fisher Price Little People, the bassinet, several sleeping bags, all the papers I wrote while at the College of William and Mary, and the Christmas decorations. I know that I should take them down and shred them, but I just can't bring myself to do it. The children will just have to do it when Daddy and I have passed away. Best wishes to you!