While the IRS will not tell a taxpayer how long they need to keep their tax records, it’s prudent to keep them anyway. But just what should you keep and for how long? As a general rule of thumb, if you “attempted’ to file your return correctly, then you will want to keep everything for 3 years. However, take a look at the two tables shown below for further details and items only applicable to certain situations.
Supporting Tax Documentation To Keep |
|
|---|---|
| Item | Supporting Record |
| Income | Form(s) W-2 Form(s) 1099 (INT, DIV, Etc.) Bank statements Form(s) K-1 |
| Expenses | Canceled checks or other proof of payment Invoices Receipts |
| Home | Closing statements/HUD-1 Purchase and sales invoices Proof of payment Insurance records |
| Investments | Brokerage statements Mutual fund statements Form(s) 1099 Form(s) 2439 |
Length Of Time One Should Keep Their Tax Documentation |
|
|---|---|
| Situation | Retention Period |
| Owed tax and the subsequent three situations do not apply to you | 3 years |
| Did not report income that is more than 25% of the gross income shown on the return you filed | 6 years |
| Filed a fraudulent return | Indefinite |
| Do not file a return | Indefinite |
| File a claim for credit/refund after you filed your return | 3 years or 2 years after tax was paid (whichever is later) |
| File a claim for a loss from worthless securities | 7 years |
How were the lengths of time determined? Most of them coincide the the various IRS Statute of Limitations. This is the length of time the IRS has to assess additional tax against a taxpayer, request further information or subject a return to audit. Needless to say, one wants to make sure they have their “proof” for at least the length of the statute. However, it may be advisable to keep your support indefinite.
For example, if you make contributions to your IRA, you will want to probably keep all of your tax returns. Why? Well, when it comes time for you to make your withdrawals come retirement, those that represent a return of the money you contributed are tax free. How will you know how much you contributed? Exactly; you’ll need the originally filed tax returns! So keep those tax records as long as you think you may need to; you never know when you may have to reference them to prove your case.