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Posted by Jim McClaflin, EA, NTPI Fellow, CTRC

How Long Should You Keep Your Tax Returns?

How Long Should You Keep Your Tax Returns?

Keeping old tax records can save you time and effort if you are audited or need to file an amended tax return. Previous tax returns can also help you document your income when applying for a loan, such as a mortgage. This article will discuss how long to keep your tax returns and how to organize your records if you need them later.


How long do you have to keep your tax returns up to date?

You must keep your tax records for at least three years from the date you filed your return or 2-years from the date you paid your tax, whichever is later. For example, if you filed your return in February 2022 before April 15, 2022, you will keep your tax documents until at least April 15, 2027, five years from the due date.

If you have a business with employees, you must keep copies of your payroll tax records for at least four years from when the tax is due or when you pay it again, whichever is later. 

Your creditors may require you to keep certain tax records longer than the IRS.


Federal tax returns

Records should be kept in a safe place for at least three years, as the IRS generally has three years from filing to review returns, although most audits occur within two years of filing.

However, you may not want to throw those records away even after three years. If the IRS finds a "clerical error," it can audit additional returns, though they're usually no more than six years old.

There is no statute of limitations for audits if the IRS suspects tax evasion or failure to file a tax return for a specific year. So, keep that in mind before discarding any document you believe you don't. Keeping these documents handy can help you if you need to prove that you followed the rules.


Three years

For at least three (3) years, you must keep tax returns and supporting documents, such as W-2s and 1099s. You should also keep copies of receipts, canceled checks, and bank or credit card statements that document deductible expenses or tax credits you claimed.

Keep ownership records for at least three years after the sale of your property, whether it's your home, another real estate, or investments such as stocks and bonds. Your records will help you determine your profit or loss when you sell.


Six years

If you underreported your income over 25% of the amount on your return, the IRS has six years to verify it. The same rule applies if you report less than $5,000 income from foreign financial assets.


Seven years or more

The internal revenue service (IRS) requires you to keep records for seven years if you write off a loss due to non-performing debt or non-performing security.

Once the IRS determines that you owe taxes, you have 10 years to collect your debt.


State tax returns

Many states follow the same IRS period of three to six years, but some states take longer to verify. These rules can be complicated. Keep all records until you pass your state's statute of limitations.


Tips for organizing your tax return

Whether you store your tax documents on paper or online doesn't matter. All you need is a system that allows you to efficiently locate your records, if necessary.

If you keep hard copies of your tax documents, keep them in a fire and water-resistant safe. Consider using a separate folder for each exercise to keep your paper materials organized. However, a more efficient option is usually to digitize your recordings and store them electronically on an encrypted drive or in the cloud. Considering the privacy of your information, be sure to protect it with a unique, complex password and enable two-factor authentication.


Summary

  • Check your state's rules to determine how long you must keep state tax records.

  • Keep all tax records for at least 3-years from the date the tax return is filed or 2-years from the date the tax is paid, whichever is later. If you paid in advance, keep records for at least two years from the tax due date.

  • The IRS usually has three years to review you after filing the return but may go back six years if there is a clerical error.

  • There is no statute of limitations if you suspect tax evasion or failure to file a tax return.


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Jim McClaflin, EA, NTPI Fellow, CTRC
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