Tax Documents: What Should I Save & For How Long?

If you’ve been filing taxes for more than a few years, you may have begun to notice a growing amount of important documents, receipts and tax returns that have started to pile up.

How long do you need to keep this stuff? What exactly do you need to keep? And why do you need to keep it?

The length of time that you should keep certain records really depends upon what that record proves. You should keep documents and receipts for any kind of income or deductions you report on a tax return until the statute of limitations runs out for that tax period.

The statute of limitations refers to the amount of time that you have to amend your tax return either to claim an additional credit or refund or the amount of time that the IRS has to assess additional tax for that tax year. Typically, the statute of limitations is three years from the date the tax return is due or when the tax return is actually filed, whichever is later.

Keep in mind, however, that there are some exceptions to this three-year statute of limitations rule.

  • If you discover that you have underreported your income by more than 25 percent of the gross income on your tax return, the statute of limitations becomes six years.
  • If the IRS determines that a tax return has been filed and it is fraudulent or you didn’t file a tax return at all, there is no statute of limitations for these tax years, so you’ll want to keep those records indefinitely.
  • If you file an amended return, the statute of limitations is three years from the original due date or two years from the date you paid the tax, whichever is later.
  • If you file a claim for a loss due to worthless securities or a bad debt, you’ll need to retain those records for seven years.

So what sort of records should you keep?

The following records should be kept not only for an IRS audit or state audit, but also in the case of a creditor dispute, an insurance claim or for lending purposes:

  • Income documents – Keep W-2s, 1099s and any other records that support the income you claimed on your return.
  • Bank statements – Keep all of your bank statements, because these are frequently requested for an IRS audit.
  • Receipts or records of deductions – Keep your receipts and any third-party records that document a deduction you’ve claimed on your return. These could be donation letters, mileage logs or bank statements.
  • Asset records – You’ll want to be sure to keep records pertaining to assets even after you’ve sold them, because this generally supports the amortization, depreciation and gain/loss calculation claimed on the return.

Be sure to keep your records in a dry, safe and fireproof location. You can keep them in their original format in paper, or you can store them electronically, as the IRS will typically allow reproduced copies of records for audit purposes.

Contact ACT Services, Inc.

Have additional questions about tax document retention?
E-mail Tina Moe.

Contributed by: Tina L. Moe, CPA, President & CEO