How Long You Should Keep Tax Returns
Keep Tax Returns Until the Time Period for an Audit Expires
It's not just about paperwork piling up on your personal desktop. Computer hard drives can get clogged and overburdened, too. Even flash drives and other neat little accessories only hold so much and can be easy to misplace. It can be oh so tempting to throw out clutter and paper that you don't really need anymore. Or do you? How long are you supposed to keep cramming these spaces with old tax documents and returns?
There's no way around it—tax returns and related documents are important to keep. You'll need them in the event that the IRS wants to review information relating to that particular tax year, and old tax returns can come in handy for several other purposes as well, such as verifying income when you're applying for a loan or an apartment.
How Long You Should Keep Returns
Generally speaking, tax returns and related documents should be retained for at least as long as the IRS or a state taxing authority is permitted to audit that return. This period of time is referred to as the statute of limitations. It's three years from the date the tax return was actually filed for federal returns, or three years from the April 15 deadline if the return was filed before the deadline.
Each state has its own statute of limitations on audits. Many states follow the federal time period of three years, but others have longer time periods. For example, Montana has a five year time period for audits.
What You Should Keep
Along with a copy of your tax return, you should keep any documents that are related to the income, deductions or credits you reported and claimed. This would include items like copies of your Forms W-2, Forms 1099, acknowledgment letters for charitable donations, and receipts for tax-deductible expenses. Self-employed persons should also keep copies of any accounting records, such as bank statements, profit, and loss statements, or a backup of their data from their accounting software.
You might also want to keep any documents about real estate, business assets, stocks, bonds, or other assets you own for as long as you own them, then another three years or longer after the asset is sold, depending on your state. You'll need these records for calculating cost basis and gain or loss for capital gains tax.
When It Is Time to Discard
Make these final checks before you begin tossing out old tax and financial documents:
- Check your Social Security statement and compare your earnings to the information on your W2s and tax returns. If you haven't received a Social Security statement lately, you can request one from for the . Every so often, the income from your W2 or self-employment income from your tax return won't show up on your Social Security Statement. The SSA has procedures in place to help you you might find.
- Check the date you filed your tax return. Make sure that it's been at least three years after the tax return was filed before you discard it.
- Call the IRS and ask for a "Record of Account" for a particular tax year. Your accountant can do this for you and help you understand this IRS printout. Sometimes adjustments are made to tax returns after they're filed and you might not know about it or you've forgotten about it. This is an opportunity to make sure any IRS problems for a particular tax year have been settled before you throw away your important documentation.
- Scan your tax documents and save them to a CD-ROM or flash drive even if you toss the paper copies. Scanned copies of your documents take up far less space than paper files.
- Shred your old tax and financial documents. Don't just wad them up and toss them in the nearest trash can! You don't want anyone to be able to gain access to your identifying information.
How You Should Keep Everything
Scanning and saving to your hard drive is the ultimate space-saver, but tax returns and related documents can be maintained in a number of other ways as well:
- Paper files organized by the year with tax returns and related documents all in the same folder.
- Use an accordion file or a box for each year.
- Keep separate files for your long-term assets.
- Make CD-ROMs or flash drives of your most valuable documents and put these in a safe deposit box.