How long do you keep tax returns? The answer might surprise you – because keeping good tax records goes long beyond when you finally receive your tax refund.
After you’ve gone through all the hard work of filing your tax returns and getting your tax refund, be sure to stash all of your paperwork in the filing cabinet for safekeeping. This isn’t something you’ll want to just throw in a pile on your desk. Keeping good tax records – and keeping old tax returns organized and safe from harm – is important if you want to avoid potential fees and legal issues.
So how long are you actually supposed to keep your tax documents? In this guide, we’ll tell you everything you need to know!
Why is Keeping Tax Records Important?
What happens if you don’t hang on to tax records?
In the best case scenario, absolutely nothing. But in the worst case scenario, you may wind up owing more money.
That’s because, if you’re ever asked for supplemental documentation to back up what’s in your federal or state income tax returns, you’ll need to provide some proof. Without that proof, you could be charged more money since you’re technically claiming things that aren’t able to be proven.
You might not necessarily get accused of filing a fraudulent return, but you could end up spending more money than you’d like. So, whether you do your taxes yourself or use a tax prep service, make sure to keep those records somewhere safe.
What is the IRS Statute of Limitations on Tax Returns?
The IRS statute of limitations refers to the timeframe in which you can amend a tax return to claim a refund or credit – or in which the IRS can charge and evaluate for additional tax.
In most cases, the statute is three years – however, there are some situations in which this doesn’t apply.
Tax Records to Keep for One Year
Countless people hang on to old pay stubs for five, ten, even fifteen years – but you don’t need to keep these items cluttering up your filing cabinet.
In most cases, you only need to keep pay stubs for a year, which is when you can check them for accuracy against your W-2s.
Tax Records to Keep for Three Years
If you are a standard employee who receives a W-2 and your tax returns are not that complicated, you probably only need to keep tax records for around three years after the date that you filed.
Three years is the time in which you must claim any tax refund that is owed to you and also the time in which an IRS audit can occur. In most cases, the Internal Revenue Service won’t go back any further than those three years.
This is true for self-employed and freelance workers, too – with one exception. If you claim the sale of some sort of equipment for your business, you will need to keep tax records longer.
You’ll also want to hang on to 1098 forms if you deduct mortgage interest or 1099 forms that show income, dividends, capital gains, or interest on investment.
Things like charitable contribution documents also fall into this category, as do records showing traditional IRA contributions and eligible expenses for withdrawals from 529 college-savings plans and health savings accounts.
Tax Records to Keep for Seven Years
The three-year rule is a good rule of thumb for most people. However, there are some situations in which you may need to keep documents longer.
For example, if you omit more than 25% of your gross income from your tax return, the IRS legally has six years to assess additional tax. If you file a fraudulent return, whether purposefully or by accident, that statute never expires.
Tax Records to Keep for Ten Years
There are some cases in which you may need to hang on to records indefinitely.
Any records related to retirement accounts should be kept for seven years after the money is withdrawn.
If you ever paid taxes to a foreign government you might be able to get a deduction or credit on your American tax return. You can file an amended return or correct a previously claimed foreign tax record within ten years.
Tips for Storing Tax Returns and Documents
Now that you know how long you should hang on to your tax records, here are some tips on how to do that without losing your mind!
Know What to Keep and What to Toss
You don’t need to keep every single receipt – the $10 receipt from McDonald’s for that hamburger you ate on your business trip six years ago can probably go in the trash.
However, it’s important to know exactly what you need to keep so you aren’t hanging on to unnecessary records indefinitely.
Gross Income and Employment Tax Records
Obviously, your tax return starts with the money you made, so keep records of all the money you received in a given year. That means hanging on to things like W-2 forms, 1099s, and K-1s.
Particularly if you are working in a self-employed or freelance fashion, you need to hang on to records of expenses. That might mean receipts, canceled checks or proof of payment, annual bank statements, invoices, and sales slips.
Mortgage interest deduction forms are important tax documents to keep, as are closing statements, proof of payment, home insurance records, and purchases and sales invoices.
If you are earning any extra cash from your investment portfolio, those documents need to be stored, too. Hang on to 1099 forms, 2439 forms, and annual brokerage statements to be safe.
Planning for retirement comes with its own set of tax implications. Keep 8606 and 5498 forms, annual statements, 1099-R distribution records, and 401(k) or other company-sponsored plan statements.
You don’t have to submit proof of health insurance when you file your taxes, but you may still need to show that you are covered in the event of an IRS audit. Keep forms 1095-A, 1095-B, and 1095-C along with insurance cards, insurance provider statements, payroll statements that show health insurance was deducted, and time limit exceptions.
While it’s important to keep every aspect of your home office as organized as possible, it’s of the utmost importance when it comes to preparing future tax returns and past income tax returns. Any records-related items should be kept in a safe place, ideally in a locked filing cabinet that is fire-resistant.
While the best filing system for you will vary depending on your organization style and what kinds of basic tax documents you need to hold on to, it’s a good idea to keep things organized by year as well as by category (such as documents from the insurance company, income forms, receipts, mortgage documents, and bank statements).
That way, if the Internal Revenue Service decides to audit you (or perhaps just needs a bit more information), you will have everything you need to quickly respond.
There are even apps you can use to help organize your documents, such as CamScanner and Expensify.
Use a Tax Return Software
Using a tax return software to simplify the tax return process is a good idea, especially if your return is uncomplicated and doesn’t require the assistance of an accountant. TurboTax and others like it are good examples.
You can also rely on software to help keep your tax documents organized – some options might include OneDrive, Google Drive, Dropbox, Quicken, QuickBooks, or Evernote. You can scan in your documents and keep them accessible at all times – just make sure you are storing documents safely.
How to Get Rid of Old Tax Returns and Tax Documents
So it’s been twelve years and you’re still hanging on to old receipts and tax documents – take a breath! You don’t have to hang on to those records indefinitely. Once it’s time to toss, it’s important to know the best ways to do so.
When you dispose of old tax documents, it’s important that you take certain steps to keep your information safe. Shred old paper documents and wipe electronic records before you get rid of devices. This will help protect you from identity theft.
Whether you’re keeping paper or electronic copies of tax records you need to save, make sure they are safe and secure (and keep an encrypted backup of electronic records, too).
That way, you’ll have everything you need should the IRS come calling – but hopefully, they never do!
FAQ: Keeping Tax Returns
How long should I keep old tax returns?
In general, you should keep old tax returns for three years. Basic forms like W-2s, 1099s, and other receipts can usually be tossed after that period.
Can the IRS go back more than 10 years?
In most cases, there is a ten-year statute of limitations on IRS collections.
Should you keep tax returns forever?
There is no need to keep tax returns forever, although you certainly can if you’d like. In general, you don’t need to keep a return for any longer than three to ten years, depending on the complexity of your return and what is included.