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

If you don’t already have a recordkeeping system, now is a good time to start one. It’s up to you whether you want to file your documents away electronically or physically (e.g., with well-labeled folders). But what types of tax records should you keep and for how long?

Keep all documents that may have an impact on your tax return

The IRS generally recommends keeping copies of your old tax returns and any documents that support the income, deductions, credits, and exemptions that you claim. This could include things like pay stubs, bills, invoices, receipts, and other proofs of payment.

In short, you should keep all documents that may have an impact on your federal tax return. Here are some examples provided by the IRS.

• Copies of prior year tax returns as well as any letters or notices you receive from the IRS.
• Income statements such as W2s, 1099s, interest or dividend statements from financial institutions, as well as any invoices or proofs of payment.
• Investment statements like retirement savings, brokerage account statements, asset sales, etc.
• Property records such as property tax payments, mortgage payments, property sales, etc.
• Health insurance documents like proof of coverage, medical expenses, HSA or FSA statements.
• Miscellaneous financial receipts that support any credits or deductions you may want to claim.

Keep in mind this list is not meant to be exhaustive. If you’re ever unsure whether you should keep or toss a document, err on the side of keeping it. That way if the IRS requests for more information about your return, you’ll be ready. Remember, you can always consult a tax professional too if you have questions about your specific situation.

How long to keep your tax documents

The answer depends on your personal tax situation. For most individuals, the IRS generally recommends that you keep your basic tax documents for at least three years from the filing date. The IRS also suggests keeping documents related to property purchases or sales as well as certain investment transactions for longer.

Be aware that if you ever get audited, the IRS can ask to review returns that you filed within the last three years. But most audits will cover returns filed within the last two years.

Good to know: The IRS can always look back further if a more extensive review is warranted – for instance, if they find substantial errors in your return.

While the three-year period is a good basic rule of thumb, there are special situations where the IRS recommends holding on to your tax records and supporting documents for longer. The IRS provides the following general guidelines for income tax returns:

• Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
• Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
• Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
• Keep records indefinitely if you do not file a return or if you file a fraudulent return.

For more details, visit the IRS webpage here. Consult a tax professional if you have questions about your specific situation.

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. 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 your documents are properly disposed of, as tax, financial, and health documents contain sensitive personal data. And before throwing out your tax records, make sure you don’t have to keep them for longer for other nontax-related purposes. For instance, sometimes your insurance company or creditors may require you to keep certain records for longer than the IRS does.