How Many Years of Tax Records Do You Need?

3rd August 2022

Summer Cleanup – How Many Years of Tax Records Do You Need?

Summertime is not the typical time to be thinking about tax returns. Most people are still basking in the relief of not having to think about taxes for another 9 months! However, tax records are a year-round challenge. By keeping track of records on a continual basis, taxpayers are hopefully protecting themselves against losing receipts.

For those that do a good job of organizing, the next logical question is how long should those records be kept? Taxpayers went through the trouble of carefully tracking receipts, so are usually reluctant to get rid of. Keep too long and soon the stack of files becomes burdensome to protect.

Tax Returns

The IRS has limits on how far back into your taxes they can look. It is important to understand these limits to see what you need to keep and what you can afford to get rid of. The standard answer is IRS statute of limitations, which governs how long the IRS may perform an assessment of your taxes, expires three years from the due date of the return or the date that you file, whichever is later. For example, if you filed your 2018 tax return on April 15, 2019, you would want to keep those records until April 15, 2022.
Of course, there are exceptions to this rule. For instance, this three-year period under the following circumstances:

  • If income is underreported by greater than 25%, the statute of limitations will extend to 6 years.
  • If a return is never filed, the statute of limitations is never started and there is no expiration date.
  • Records pertaining to property purchases should be kept until the property is sold. The biggest example is the purchase of a home. Taxpayers should keep record of the purchase along with substantial improvements until the home is sold. The standard three-year period would start after the year of sale.
  • For unusual or larger transactions, it might be prudent to keep for 6 years instead of 3 years.

Supporting Documentation

Keeping a copy of your return is important, but so is the documentation used to prepare it. Examples of documentation are:

  • Form W-2, Form 1099-DIV, Form 1099-INT, Form 1099-R, Form SSA-1099.
  • Real estate receipts.
  • Charitable donations.
    • Under $250, need proof of payment.
    • Over $250, need acknowledgement from the charitable organization.
  • Mortgage interest.
  • Medical expenses to the extent tax benefit was received in the year of payment.

Since 1997, the IRS has accepted scanned receipts rather than paper copies. As long as they are accurate, you can store your copies digitally and save yourself some space. Since your tax records contain sensitive personal and financial information, you should store them in a safe place and be sure to shred all copies when you no longer need them. We are happy to help with the shredding process if you want to drop off at our office.

Like this article? Share it with others