Tax documents can accumulate quickly. While clearing out old files can feel productive, it’s important not to discard anything until you’ve reviewed some record-retention guidelines.
Why Good Recordkeeping Is Important
Well-organized records make it easier to prepare accurate tax returns and respond if the IRS requests additional information or examines your return. Documents such as receipts and bank statements should support the income, deductions and credits you report.
Good recordkeeping also helps you monitor financial activity throughout the year. And it can simplify preparing future tax returns or amended returns.
The General Rule
Records that support a tax return should generally be kept until the statute of limitations expires for that return. In general, the IRS has three years to assess additional tax after a return is filed. Returns filed before the due date are considered filed on the due date.
This three-year window is why you should keep supporting documentation — such as W-2 and 1099 forms, receipts and charitable contribution records — for at least that long.
Situations That Extend the Timeframe
Certain circumstances allow the IRS additional time to review a return. For example, the statute of limitations increases to six years if more than 25% of gross income is omitted from a return. If a taxpayer fails to file a return or files a fraudulent return, there’s no time limit on when the IRS can assess tax.
Additionally, the timeframe for claiming a refund generally extends to three years after filing the return or two years after paying the tax, whichever is later. (This generally would require filing an amended return.)
Don’t Discard These Records Too Soon
Some documents should be retained beyond the typical three-year period because they may affect multiple tax years or support future transactions. These include:
Property and investment records. You should keep records related to property (such as real estate) or investments (such as stocks or bonds) for as long as you own the asset, plus at least three years after it’s sold. These records are needed to calculate the basis, gain or loss when the asset is sold.
Retirement plan records. Retain retirement and pension documents for as long as the accounts have funds and for at least three years after the accounts are closed or funds are withdrawn. Keep records of nondeductible IRA contributions indefinitely to prove taxes were already paid on those amounts.
Bad debt or worthless securities deductions. Records supporting these claims should generally be kept for seven years from the date the return was due.
Filed tax returns. Proof of filing should be kept for at least as long as the statute of limitations applies to that return. However, it’s a good idea to keep proof longer for your records.
Seek Guidance
Don’t guess when it comes to tax records. If you’re unsure whether to keep or discard certain documents, contact the office for guidance.
