With tax day behind you it can be easy to forget about all of that paperwork until next year. You can’t just stuff the tax return in a drawer for the rest of time because you’ll eventually run out of space. Shredding (or worse yet, throwing away) your tax returns can be detrimental if it turns out you need them in the future. But how long should you keep your tax returns if you shouldn’t throw them away?
How Long Should You Store Tax Documentation?
The IRS provides some specific guidelines as to how long you should keep your tax documents.
The easy answer? You should keep your tax return and associated documentation for 7 years after you’ve filed your return. The only time you would need your documentation after 7 years is if you filed a fraudulent return. In that case, the government recommends you keep your tax records forever.
Period of limitations
The long answer is you should keep your tax documents for as long as the period of limitations applies to them.
The “period of limitations” is the period of time that you can:
- file an amended tax return for additional refund
- file an amended tax return to claim a credit you did not originally claim
- have additional tax assessed to you by the Internal Revenue Service
Here’s how the IRS’ rules are broken down from the longest period of time you should keep documentation to the least.
You should keep your tax documents the following number of years based on the situation:
- Forever if you filed a fraudulent return
- Forever if you did not file a return
- 7 years if you filed a claim of loss from worthless securities or a bad debt deduction
- 6 years if you did not report income that you were required to report AND that income is more than 25% of the gross income shown on the return you filed
- 4 years is how long you should keep your employment tax records (from when the tax was paid or was due)
- 3 years from the date you filed the return (or 2 years from when you paid the tax) if you claim a credit or refund after you file your return
- 3 years if you owe additional tax and #1, #2, and #4 don’t apply to you
Which Specific Tax Documents Should I Keep?
Should I keep every W-2 and 1099-MISC statement I am sent during tax season? Or is it okay to toss everything but the return?
The guidance the IRS gives is to keep anything that supports an item of income or deduction on your return for the period of limitations that would apply. You’ll want to keep your W-2 and 1099 statements to show that everything on your return was accurate. Likewise if you claim a bunch of deductions, you’ll want to keep your receipts and documentation of those deductions.
Pro tips: Keep your tax return and all supporting documentation in a labeled manilla envelop with a metal clasp to ensure nothing easily falls out or gets mixed in with the wrong tax year. Another pro tip is to scan your tax records each year and save a digital copy on a hard drive away from your residence (such as in a safety deposit box) or save a digital copy in the cloud with a service like DropBox, or Mozy. The IRS accepts digital copies of tax records, so in this way it is possible to maintain your records in for a long time without worrying about storage issues.
Defining “Years” When It Comes to Storing Tax Documentation
A critical thing to know is what the Internal Revenue Services means by the number of years you should store the documentation. Does the year time frame start on December 31 of the tax year of the return? Does it start when you file your return? Or something else?
Generally speaking when the IRS says to keep your return 7 years the time begins from the moment you filed your taxes or when the taxes were due. For example, if you filed your 2011 taxes on March 15, 2012, the year time frame would start is April 17, 2012 because taxes were not due until then. You would keep your taxes until April 17, 2019.
Photo credit: Velo Steve