Save, Shred or Delete? What to Know About Retaining Tax Documents
Whether you keep your old tax records in a cabinet, an email folder or the cloud, it’s advisable to know exactly what you need to retain and for how long. The answer isn’t always clear-cut.
For Internal Revenue Service purposes, the short answer for keeping tax-related records almost always falls in a range of three to seven years, depending on the document and your filing circumstances. In certain situations, it can be more. Specifics are below.
But good recordkeeping practices are about more than taxes. You may need them longer in order to help in obtaining loans, buying property and getting life insurance, among other purposes. So if you’re not sure about whether to keep something, just remember the adage about food safety and do the opposite: When in doubt don’t throw it out.
Tax returns: We recommend hanging onto your actual income tax returns indefinitely – the Form 1040s as well as accompanying schedules and forms. They may be needed someday to track down the value of certain assets. You can always convert them to a digital format to save space if you haven’t done so already.
Supporting documents: You are required to keep records that support items shown on your return until the period of limitations for that return runs out. These include W-2 forms, 1099s, canceled checks and receipts for charitable donations, and other information needed to document income or deductions.
The basic period of limitations in which the IRS can assess additional tax or initiate an audit is three years, assuming you filed a non-fraudulent return and reported income appropriately.
If the agency thinks you have underreported your income by 25 percent or more, however, it has six years to question you. If you filed a claim for a loss from worthless securities or bad debt deduction, the IRS has seven years. And there is no statute of limitations on bad-faith filings if the IRS suspects you submitted a fraudulent return.
State statutes: State tax statutes on periods of limitations can differ – some are longer than the IRS’ – so you also need to consider the statute for the state in which you file.
Disposal: When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For instance, your insurance company or creditors may require you to keep certain records longer than the IRS does.
Documents you should keep beyond the standard three or six years:
- Form 8606 reporting nondeductible contributions to traditional IRAs until you withdraw all the money from the IRAs.
- Records showing the purchase date and price of stocks and mutual funds in taxable accounts.
- Records of reinvested dividends you have already paid taxes on so you won’t be taxed on them again.
- Records of home improvements as long as you own the house.
More details on how long to keep tax records are available in IRS Publication 552, Recordkeeping for Individuals.
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