Tax returns include a lot of paperwork, and if you're trying to declutter, you may be tempted to toss them in the trash. But the tax forms you filed are important documents with crucial financial information you may need later.
As a result, it's important to know how long to keep tax returns so you don't throw out paperwork too soon. This guide will explain what you need to keep, how long to keep it, and how to safely dispose of old returns once it's safe to do so.
How long should you keep tax returns?
It’s typically a good idea to keep past income tax returns for at least as long as the IRS can come back and audit you. In some cases, it may be a good idea to keep some documents for a longer time frame, as they may come in handy later. Here's what taxpayers need to know.
Consider the period of limitations
After you submit a federal tax return, the IRS has the authority to come back and audit you. If they do, you don't want to be without the paperwork you need to respond to the IRS audit.
As a result, make certain you keep copies of your returns and related documents until the statute of limitations runs out. The statute of limitations is the time period during which the IRS has the authority to do an audit. Once it's passed, you may be in the clear.
Here's what you need to know about the statute of limitations for IRS action under specific circumstances:
- If you filed a claim for a tax credit or refund after filing your return, you should keep records for the later of three years after filing the original return or two years after paying any taxes due.
- If you claimed losses for worthless securities, you should keep your records for seven years.
- If you took a bad debt deduction, you should also keep records for seven years
- If you fail to report the income you were obligated to report, and the amount of unreported income exceeds 25% of the gross income your tax return showed, you should keep your records for six years
- If you fail to file a tax return or if you file a fraudulent return, you should keep records indefinitely
- If you owe employment taxes, you should keep records for at least four years from the later of the date you owed the taxes or the date you paid them
- In most other situations, you should keep your records for three years
These are the minimum periods of time you should hold onto your tax forms and supporting documents, such as receipts, based on the statute of limitations that applies to federal taxes.
If you also file state tax returns, you'll want to check with the local Department of Revenue where you live to find out what the timeline is for the agency to take action. These can vary from state to state, and you'll want to ensure you don't get rid of your forms while the place where you live can still pursue an audit or claim against you.
What records should you keep?
It's important to keep any and all forms and documents you sent to the IRS and paperwork supporting the information you provided the agency. For example, if you claimed a specific business expense as a tax deduction on your return, you'd want to keep the receipt and/or account statements.
Key documents you'll want to hang onto include:
- Your 1040 form and other forms submitted to the IRS
- Property records
- Health insurance records
- 1099 and W-2 forms
- Financial statements to verify reported income
- Canceled checks that provide proof of income or deductible expenses
- Bank statements to show your earnings
- Paid invoices
- Sales receipts
- Forms showing mortgage or student loan interest
- Credit card statements to verify expenses you declared or deductions you claimed
If there is any chance the IRS might ask to see a particular document as part of an audit, it's a good idea to make sure you have it available.
Why you might want to keep returns longer
In some cases, it's a good idea to keep records for a longer period of time. Knowing when to hold tax returns and documentation for longer is a key part of knowing how to manage your money because you don't want to need tax information and be unable to get it.
One clear example of when you may wish to keep tax documents for longer is when those documents relate to a property, such as your house or rental property. In these situations, keep records related to real estate until the statute of limitations expires for the year when you sold (or otherwise gave up your ownership interest in) the property.
Keeping records relating to real estate for longer is necessary so you can calculate capital gains on the home sale and correctly calculate deductions for depreciation or amortization.
In cases where you received property in a nontaxable 1031 exchange, you'll want to keep the documents for both the old and new property until the statute of limitations expires.
Other documents you may want to hold for longer include:
- Business tax returns
- Employment tax records
- Tax returns showing capital losses
- Retirement account statements, including 401(k)s and IRAs
These forms could be helpful not just in case of an IRS audit but for other purposes, such as declaring future losses that are carried over into later years or if your insurance company or creditors want to see the documents in the future.
What to do with old returns
When it's past the point the IRS could come back to question you, and you've confirmed you don't need your old documents for any other purpose, you don't simply want to throw your past tax forms in the trash. These forms often contain personal identifying information, and tossing them out could make you vulnerable to identity theft.
The best option is to shred any document you wouldn't want a criminal to see. This includes paperwork with your birthdate, Social Security number, or account numbers.
Can the IRS go back more than 10 years?
The IRS typically doesn’t go back more than 10 years. The IRS usually has three to six years to audit you, depending on the situation. After the IRS has assessed that you owe additional taxes, the agency typically has 10 years to try to collect.
There have been rare situations where a court has held that the IRS can go back for a longer period of time, such as in certain cases involving old payroll tax liabilities, however. If you’re unsure how long to keep specific forms, especially ones related to business, consult a tax professional such as a certified public accountant (CPA).
Why should you keep your tax records?
You should keep your tax records in case the IRS audits you, you need to file an amended return, or in case you need information from the forms for other purposes. If the IRS has a question about a past return you submitted or raises doubts about whether you declared the right amount of income or whether your deductions were legitimate, you will need the documentation to be able to prove you followed tax rules.
Keeping returns from past tax years can also help you in filing future ones, and you can refer back to the information on them for other purposes as well, such as figuring out the cost basis of a property for capital gains taxes or determining how to correctly claim a deduction for depreciation.
How long do you have to file taxes?
Ideally, you should file tax returns by the tax filing deadline each year, which usually falls on April 15 or the next business day. You can file for an extension, which gives you until October 15 to file a return. If you owe taxes, however, you’re still required to pay them by the April 15 due date, or you could be charged penalties. If you miss the filing deadline, you have three years to file and claim a tax refund or unclaimed credits.
Now that you know it's a good idea to keep your returns for a while, you just need a place to store them. The best tax software will generally keep electronic copies for you for years to come after you submit your forms, but maintaining printed hard copy backups in a safe, secure place at home may also be a good idea, just in case.
With both online and digital copies of your returns, you'll have the confidence of knowing you can access all your past tax information whenever you need it.
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