The length of time you should keep tax records and supporting documents depends on several factors, such as the type of document and your specific tax situation. Here are the general guidelines:
Tax Records: General Rule
- You should keep most tax records for three years from the date you file your return. This includes:
- W-2s and 1099s (income documents)
- Receipts for deductions (e.g., charitable contributions, medical expenses
- Tax returns and all supporting forms and schedules
- Bank statements and records of any other financial transactions used to prepare your return.
This is the standard statute of limitations, during which the IRS can audit your return, or you can file an amended return.
Tax Records: Exceptions
If you underreport your income by more than 25%: The IRS has six years to audit your return.
- TIP: To be safe, keep all records, including income statements and deductions, for six years if there’s a chance you might have significantly understated your income.
If you claim a deduction for bad debts or worthless securities: The IRS has seven years to review or audit your return.
- TIP: Keep records for seven years. These deductions require more documentation and may prompt additional scrutiny.
If you did not file a tax return, there is no statute of limitations, meaning the IRS can audit or assess taxes at any time.
- TIP: Keep all related records indefinitely, especially if they show proof of a lack of need to file a tax return.
If you filed a fraudulent return, there’s no time limit for the IRS to assess additional tax or penalties.
- TIP: Don’t file fraudulent returns and keep all related records indefinitely in these cases.
Records for Employers
If you’re an employer, keep all employee and employment tax records for at least four years after filing the last quarter for the year. These include records related to payroll taxes, employee wages, and unemployment tax filings.
Records for Assets and Property Sales
For assets like real estate property, stocks, or bonds, keep records of your purchase price (to establish cost basis), any improvements that add to basis, any reductions in basis (casualty losses, theft losses, etc.), and transaction-related documents for as long as you own the property, plus three years after you sell it.
These records help you calculate capital gains or losses when you sell the asset.
Records for Business Expenses
If you’re self-employed or own a business, keep records related to business expenses and income for at least three years. These include receipts, invoices, mileage logs, and other documents that support business deductions or credits.
Records for Retirement Accounts
For IRA and 401(k) contributions, keep records until you withdraw the money and report it on your tax return. These documents may help you determine if any of your withdrawals are taxable.
By keeping the right tax records for the appropriate amount of time, you’ll be prepared in case of an audit or if you need to amend your tax return.
