Which Tax Documents Do I Need to Keep?

If you get the urge while preparing your tax return to shred old files taking up valuable space at home, be careful not to overdo it. While the IRS generally has three years after the filing deadline (or the date actually filed, if later) to initiate an audit of an individual taxpayer, there are exceptions – and reasons to keep some records for longer. State statutes of limitations differ – some are longer than the IRS’ – so you also need to consider the statute for the state in which you file.

We recommend permanently hanging onto your actual tax returns – 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.

What about the supporting documents, such as 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 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.

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 that 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.

The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice.  Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training.  While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.