Done With Your Personal Taxes? Here’s What to Keep for Your Records

What we’ll cover:

• Tax documents should be saved for at least three years in case you ever need to respond to an IRS inquiry
• The types of documents you may want to hold on to include previous returns and key financial statements
• Whichever organization method you use, the goal is to be able to find your records easily when necessary

We know you probably can’t wait to clear all the paperwork and snack wrappers that have piled up on your table while you were doing your personal income taxes. 

Go ahead, toss the wrappers, but save your tax documents. And we don’t mean just shoving everything back into a folder or a shoebox. If you don’t already have a recordkeeping system, now is a good time to start one.

Keeping your tax records organized can make it easier to find the right documents in case you need to:

• Respond to IRS questions or audit
• Amend a tax return
• Prepare for next year’s return
• Provide tax information for certain applications (e.g., home loan, financial aid, etc.)

But what types of records should you keep and for how long? 

What tax records to keep

The IRS doesn’t provide a definitive list of documents you should keep. And that makes sense given that everyone’s tax situation is different. The IRS generally recommends keeping copies of your tax returns and any documents that support the income, deductions, credits and exemptions that you claim. 

With that in mind, here are some examples of the records you would want to hold on to.

• Copies of previous and current tax returns: Usually some version of Form 1040 (e.g., the standard form and 1040-SR).
• Income statements: W-2s, 1099s, K-1s, bank statements, etc. 
• Investment statements: retirement savings, quarterly brokerage statements, asset sales, etc.
• Health care statements: Health Savings Account (HSA) statements, Flexible Savings Account (FSA) statements, proof of insurance coverage, medical expenses, etc.
• Real estate statements: property tax payments, mortgage payments, etc.
• Miscellaneous financial records: relevant receipts, bills, work invoices and basically anything you may want to deduct.

If you’re ever unsure whether you should keep or toss a document, err on the side of keeping it. This is one instance where you won’t be judged for hoarding. If the IRS ever reaches out to ask for more information, you’ll be ready.

Don’t forget: You can always check in with a tax professional on what documents to save. 

How long to keep your tax documents

The answer depends on your personal tax situation.

But for most individuals, the IRS generally recommends that you keep your basic tax documents (usually some version of Form 1040 plus supporting documents) for at least three years from the filing date. That’s because if you ever get audited, the IRS can ask to review returns that you filed within the last three years. According to the IRS, most audits will cover returns filed within the last two years. 

Keep in mind though that they can always look back further if a more extensive review is warranted – for instance, if you’ve substantially underreported your income. 

But the three-year timeline is just a general rule of thumb for basic tax recordkeeping. There are some situations where the IRS recommends you hold on to your tax records and supporting documents (receipts, statements, etc.) for much longer.

Keep records for . . .

• 4 years: (at least): if you have employment tax records. 
• 6 years: if you forgot to report any income that you should have included in a return, and it’s more than 25% of the gross income shown on your return. 
• 7 years: if you filed a claim for a loss from worthless securities or for a bad debt deduction.
• Forever: if you do not file a return or if you ever filed a fraudulent return – we’re not being dramatic either, the IRS explicitly says to keep records “indefinitely” if these two situations apply to you.

Parting thoughts

How you choose to maintain your tax records (digital vs. paper) is up to you, as long as the system keeps you organized and allows you to easily access your documents when you need them. 

No matter what organizational method you use, the most important thing is to keep your records in a safe and secure place. When it’s time to throw away old records, make sure that the documents and/or data are properly destroyed. Tax, financial and health documents contain sensitive personal data. You don’t want them to fall into the wrong hands.