The Internal Revenue Service (IRS) has some hard and fast rules regarding how long taxpayers should keep their tax records.
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.|
|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 period of limitations is the time in which you can amend your tax return to claim a credit or refund, or the time in which the IRS can assess additional tax.
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.
6. You file a claim for a loss from worthless securities or bad debt deduction: Keep records for seven years.
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.
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.
You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
Andorra is one of many locations around the globe considered a tax haven because of its relatively lenient tax laws. However, ... Read Full Answer >>
TaxesThe earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience – and all the tax benefits you're due.
TaxesUse this quick parental guide to help your child learn the tax filing process and establish good habits.
TaxesThese tips will help you get a larger refund this year, while teaching you how to pay less taxes going forward.
TaxesThe tax rules for same-sex spouses are largely the same as for traditional filers, but there are a few special considerations that apply.
TaxesWe look at the pros and cons of using tax software versus an accountant when filing your tax return.
TaxesA combination of new taxes and expiring tax reductions and new surtaxes are conspiring to make your 2013 taxes – and your 2014 tax planning – a bit more interesting than usual.
ProfessionalsAlthough market crashes are usually bad news for your portfolio, there are several ways to minimize losses or even profit outright from market movement.
RetirementAs a U.S. nonresident, deciding what to do with your 401(k) after you return home comes down to which tax penalties, if any, you're willing to incur.
TaxesLearn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
EconomicsA corporate tax is a tax levied on the profits a corporation generates.
A tax term relating to depreciable business property that has ...
Goods that international travelers can purchase without paying ...
Investopedia explains the definition of exchange-traded mutual ...
A borrowing expense that a taxpayer can claim on a federal or ...
A test used to determine whether an insurance product can be ...
A test method used to determine whether a financial product can ...