How long should you keep your tax records?

What counts as a tax record?

Any records that are relevant to your taxes count as tax records. This includes prior tax returns, receipts, canceled checks, health insurance documentation, and other documents that support income, a deduction, or a credit appearing on your tax return, or tax payments you’ve made.

Why good record keeping matters

Good record keeping matters because it’s not enough to just claim certain credits and deductions. If the IRS questions a claim, you need to provide documentation as proof. Without valid proof, the IRS may deny or revoke certain deductions or credits, which could cause you to end up owing on your tax return. The IRS may also impose fines and penalties for failing to maintain proper records.

Non-tax reasons to hold onto old returns

There are many reasons to hold onto your old tax returns that have nothing to do with the IRS.

• Lenders often request copies of past returns when you apply for a mortgage and other loans.
• Schools may ask for several years of returns when you're applying for financial aid for yourself or a child.
• Old returns can help establish your income history if you're applying for disability benefits.
• If you're self-employed, past returns can make it easier to show proof of income for things like renting an apartment.

The basic rule: keep records for at least three years

The general rule is to keep all tax records for at least three years because of the IRS statute of limitations. According to the tax code, if you do not file a claim for a refund that you are entitled to, you have three years from the date you filed the original return, or two years from the date you paid the tax, to file the claim. In addition, the IRS normally has three years from the filing date or due date of the return (whichever is later) to assess an additional tax if you did not accurately report your income. 

When you should keep records for six years or more

If you have income that you should have reported but didn’t, and that income accounts for more than 25% of the gross income on your return, you should keep your tax records for six or more years. The IRS has six years from when you filed to assess additional tax.

When you should keep tax records indefinitely

You should keep your tax records indefinitely if you do not file a tax return. The IRS is under no time limit when it comes to investigating unfiled or fraudulent tax returns.

How long do you keep records for investments, property, and retirement accounts?

For investments, property, and retirement accounts, hold onto your records for as long as you own the asset, plus at least three years after you sell or dispose of it. These records help you calculate your cost basis, which determines your gain or loss when you eventually sell.

For example, if you own stock, keep your purchase records for as long as you hold the investment. If you own your home, keep records of the purchase price and any improvements you've made, since these may affect your taxable gain when you sell. If you have a retirement account, keep your contribution and distribution records for as long as the account is open, plus three years after you close it or make your final withdrawal. 

How long should I keep records if I'm self-employed? 

The same general rules apply if you’re self-employed. Hold onto tax records involving your income, expenses, deductions, and/or credits for at least three years. Hold onto tax records involving business equipment and other assets for as long as you own them, plus three years.

Do state tax record retention rules differ from federal?

Yes, state rules can differ from federal rules, so it's worth checking your state's guidelines in addition to the IRS rules. Some states have longer statutes of limitations than the IRS, which means they can look back further to assess additional tax. Since rules vary, a safe approach is to keep your records for as long as the longest applicable period, whether that's set by the IRS or your state. 

Can I keep digital copies instead of paper records? 

Yes, the IRS accepts digital copies of tax records as long as they're a complete and accurate representation of the originals.

Best practices for organizing and securing your tax records 

There are lots of ways to keep documentation organized and secure:

• Consolidate paper tax records in one secure location.
• Scan and store your documents digitally to save space and make them easier to organize.
• Make sure your digital files are backed up in more than one place, whether that's an external hard drive, a cloud storage service, or both, so you don't lose everything if a device fails.
• Password protect everything possible, but don’t use the same password for multiple applications or files. A strong password can help you avoid cyberattacks.
• Install and use a firewall, antivirus programs, software security, and methods of encryption.
• Mask or remove your Social Security number, and your family members’ Social Security numbers, from all documents.
• Watch out for online scams. Phishing emails and clickbait might appear to come from family members, your bank or credit card company, or the IRS itself.
• Be mindful of suspicious phone calls or mail that claim to be from the IRS. The IRS will never call an individual. If you’re in doubt about any mail received, you can always call the IRS to confirm a letter, call, or email authenticity.
• Don’t follow a link or call back a phone number listed in a suspicious email.

How to safely dispose of old tax documents

Shredding paper tax records is the safest way to dispose of them to ensure that your personal information, like your Social Security number, income details, and bank account number, doesn’t end up in the wrong hands. Many banks and office supply stores offer shredding services if you do not have a shredder at home.

Make sure to delete any digital records permanently, rather than just moving to the trash folder on your computer.

What happens if the IRS asks for records I no longer have? 

You may still have options if the IRS asks for tax records you no longer have. For example, you may be able to get information about your wages or income from your employer, or duplicate statements of property tax you’ve paid from your lender. The IRS may also accept other documentation to support credits or deductions you’ve claimed, such as a written statement from a third party (like a client or contractor), insurance records, logs, bank statements, etc.

If you can't provide evidence to substantiate a claim at all, the IRS may disallow the deduction or credit, which could increase your tax bill, and potentially lead to interest and penalties for any unpaid tax.

Whether you’re a small business owner, a joint filer with lots of itemized deductions, a single filer with a simple return, or someone who doesn’t file at all, good record keeping is critical. Questions or concerns? Find tax services near you, then walk in or book now. We’re open all year!